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Virtual Account: A Complete Guide to Seamless Cash Collection.

virtual accounts - cash management solution

Are you tired of reconciling your bank statements? If yes, then this astonishing technology of virtual account can save you from your troubles. They are your one-stop solution to cash management. Although they are similar to bank accounts, they offer enormous benefits over physical bank accounts.

Want to know more about this revolutionary innovation? Here you go.

Table of Contents

  1. What is Virtual Account?
  2. How does it work?
  3. Why use a Virtual Account?
  4. Virtual Account vs Physical Account: Which one is better?
  5. Closing Words
  6. Frequently Asked Questions (FAQs)

What is Virtual Account?

Prima facie, you may consider them as a bank account operating online. If you think so, you have been misled!

 In reality, they are shadow accounts that offer the same benefits as a bank account. Sounds technical, right? In simple words, they are temporary bank accounts without any physical existence. The concept behind it is similar to creating a Virtual ID with the help of the Aadhaar Number. If you have used one, you will be able to relate.

How does this Work?

Generally, they work in 2 ways:

1. Virtual Accounts created with Escrow Account

An escrow account is an account where funds are held with a third party with a consensus of the parties. Or you can consider them an extension of Paypal.

Here, the funds are retained with the third party until they are transferred to the payee. So, the duration is temporary. The parties have to approve the transactions to complete the transaction. So, it ensures the authenticity of transactions and lowering the risk of fraud.

2. Virtual Accounts on top of a Current Account

As the name suggests, a current bank account is required to set a virtual account. The businessman can identify the payer through the virtual account number. Its API also helps to get an overview of the transactions taking place.

Due to this feature, it has become popular among NBFCs. Just like other companies, they can track the payments made by the borrowers. It helps them to identify their non-performing assets (NPAs) and manage them. Also, it helps them to calculate and collect the interest accrued.

Banks have to comply with various regulations. It is such that they have to hire a legal counsellor. But virtual account takes care of it as well. With the help of its advanced features to comply with laws.

Why Use Virtual Account?

If you understand the concept behind them, you will be able to answer the question. A Virtual Account acts as a pass-through account to a real one. It offers the following benefits to the customers:

Tracking payments

A business undergoes a lot of transactions every day. The number multiplies if it is an e-commerce business. Hence, it may become difficult to track the payments from the customers. The company has to reconcile the bank statements manually, which is a time-consuming process. That’s where this innovation comes into the picture.

By allotting a unique virtual bank account number to each payer, it helps to track the payments made by customers, also known as account receivable. So, the reconciliation process becomes easy-peasy and error-free. It helps to automate the cash collection process and eliminates the need for manual reconciliation.

Accept payments via various modes

Just like a bank account, your customers can transfer funds in the virtual account through various methods. It includes IMPS, NEFT, and RTGS. They can even pay through UPI. It helps them to pay at their convenience.

Wallet facilities

Virtual Account API helps you to develop a wallet facility for your customer, just like Paytm and Amazon Pay wallet. Here, they can send, receive and request money seamlessly till they transfer it to the bank account.

Mediator of transactions

All of the above benefits are just mind-blowing. But they don’t end here. The API also helps to accrue the benefits of an escrow account. It gives security against scams and frauds.

Also, the real account number is not shared with others. So, the chances of fraud are minimal. After all, you can’t expect a scam to occur if the scammer doesn’t even know the account number.

Time-Saving

You might be aware of the hectic account opening process in a bank. But that is not the case with a virtual account. You can open an account while enjoying yourself at home. It makes the process quite comfortable and efficient.

Improved Customer Experience

Imagine yourself to be a customer. What will be your reaction when a businessman contacts you to verify the payments made? You will be frustrated, won’t you?

But virtual account solves this problem as well. So, the customers won’t get mad at you and have a great experience dealing with your business.

Pocket Friendly

You have to pay a commission to the payment gateways every time you avail of their services. That 1.5% may look insignificant on its own, but it aggregates to a massive amount.

What if you don’t have to pay for it anymore? Well, a virtual account makes it possible. The banks charge a fixed fee instead of a commission. It helps to reduce the transaction costs significantly and acts as a pocket-friendly money manager of your company.     

Virtual Account vs Physical Account: Which is Better?

If you have read till here, you know the answer already. Virtual Accounts are similar to physical bank accounts. But they have flexibility, security, and better features as compared to the latter. They enable the company to segregate the cash flows from different payers. Thus, eliminating the administrative workload and complexity.

What’s more, it is a cost-friendly measure. It is so because companies had to maintain many bank accounts. It burnt a hole in the pockets of the owners. Now, they can manage the business effectively even with a single bank account. Hence, they can save the banking costs.

Besides these facilities, it also helps in data analysis, as the data related to payments and receivables are segregated. So, the company can make data-driven and informed decisions. In short, the overall performance of the company improves.

Closing Words

If you consider the various benefits and the immense potential, a virtual bank account may become the future of physical bank accounts. And why not! It helps a business focus on the core activities without worrying about problems of cash management and high transaction fees.

Even though the concept has been there for a long time, the adoption rate is pretty low. But the future is dynamic. So, you can’t predict when it will become the talk of the town.

In the meantime, don’t forget to use a virtual account and exploit the first-mover advantage over your competitors.

Frequently Asked Question (FAQs)

1. What are Virtual Account Numbers (VANs)?

They are system-generated, unique account numbers through which businesses can accept payments. These are linked to a real bank account. Virtual Account Number makes the reconciliation of inward payment easy.

2. Can I collect recurring payments through Virtual Account?

Yes, you can schedule recurring payments from your customers. So, there’s no need to create a new account every time. You can get paid timely.

3. How can I open a Virtual Account?

The process isn’t rocket science. You just have to visit the website of the bank of your choice and create a virtual account. As per RBI guidelines, you also have to complete KYC as well.

4. What kind of companies can benefit from Virtual Bank Account?

Their usage is omnipresent. You can use a virtual account, irrespective of the industry you are operating in. Be it education, NBFCs, B2B distributors, or any other companies.

5. How many days it takes to create a new account?

The period varies from bank to bank. Generally, it takes 2-3 days to create a new account. After creation, it can be used cash collection for business needs.

By Prasuk Jain

I am an inquisitive and tenacious person with a mix of enthusiasm and a positive attitude, currently pursuing CA.

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