Anchorage Digital Selects Modern Treasury to Power Money Movement Infrastructure.Learn more →
Virtual accounts are unique account numbers assigned within traditional, physical bank accounts, which are also known as settlement accounts. They can be used to send and receive money on behalf of the settlement account, where the funds are ultimately held. Businesses tend to create multiple virtual accounts, with each one designated to a specific client, transaction, entity, or any other business reason.
How do virtual accounts work?
Virtual accounts function similarly to standard bank accounts. They have their own account numbers, streamline incoming and outgoing transactions, and help users maintain their balances. The most notable difference is that virtual accounts cannot actually hold money. They receive it, collect necessary information about the sender, and pass it over to a primary account.
Your business bank account functions similarly to your primary email address. Virtual accounts are essentially the equivalent of email sub-aliases linked to your primary address. While sharing one inbox, you can create multiple email sub-aliases to differentiate your activity.
Let’s say that your primary email address is tony@tonymail.com. You want to sign up for different subscriptions but don’t want to directly use your primary email address. To remedy this issue, you create a list of separate sub-aliases for each subscription: tony+netflix@tonymail.com, tony+spotify@tonymail.com, and tony+hbo@tonymail.com. All of the emails will still accumulate in your main account, only now they can be sorted by the alias. A virtual account works similarly. It is a sub-alias of your primary account, allowing you to monitor and manage the lead, or source, of a payee in a single location: your main settlement account.
Why do I need a virtual account?
Many types of businesses, including neobanks and enterprises with complex funds flows, have many streams of cash all flowing into one large bank account and need the ability to attribute each cash flow to an individual user. Virtual accounts seamlessly help businesses track individual payments and automate the reconciliation process, which otherwise would be a time-consuming, manual process.
Manual reconciliation requires businesses to review every transaction and report the numbers by hand, which makes the process vulnerable to human error.
Virtual accounts, on the other hand, are fully-automated and function in real time. Therefore, they’re able to present the most accurate bank account balance. With no margin for error or unnecessary management, they’re streamlined and efficient.
Can virtual accounts hold balances?
Because virtual accounts are extensions of a physical, primary bank account, many of them cannot hold balances for themselves. It’s advantageous to pair them with a ledger, which is a book-keeping system that tracks all of your business transactions. When used with a virtual account, a ledger can further optimize balance tracking and monitoring for users. With virtual accounts powered by the features of a ledger, granting you access to every minor and major transaction, you can expect a painless, fully-digital banking experience.
Learn
Working with banks can be a complicated process. Understand intricate bank processes, learn how to approach potential bank partners, and discover how bank partnerships can drive growth in your business.
A clearing account acts as a temporary account that holds transactions before they are finalized or allocated to the correct permanent account.
The two kinds of financial institutions in the ACH network are ODFIs (Originating Depository Financial Institution) and RDFIs (Receiving Depository Financial Institutions).
BAI2 files are a cash management reporting standard. They are widely accepted by banks across the United States for exchanging data regarding balances and transactions.
Incoming payment details are notifications that a company is going to receive a payment it didn’t originate—meaning the receiving funds were not initially requested.
Lockboxes are secure bank-run mailing locations where businesses can redirect their paper-check payments, allowing banks to take over the depositing process.
Nacha files are the standardized file format that banks use to initiate and manage batches of ACH payments. These files help banks execute large volumes of ACH payments through The Clearing House (TCH) and Federal Reserve.
A sort code is a type of routing number used in the United Kingdom and in Ireland. It’s composed of six digits divided into three pairs. It routes money transfers by identifying the banks involved, as well as the location of the specific branches where the accounts are held.
Virtual accounts are unique account numbers assigned within traditional, physical bank accounts, which are also known as settlement accounts. They can be used to send and receive money on behalf of the settlement account.
Account-to-Account (A2A) banking, sometimes also called Me-to-Me banking, is the transfer of funds from one account to another account.
Balance reporting is similar to a bank statement and informs customers about their account balances in real time. Banks often perform balance reporting for businesses and larger organizations with more complex accounting needs, but it is also available to individual customers.
Bank reconciliation is the process of verifying the completeness of a transaction through matching a company’s balance sheet to their bank statement.
Implementing a multi-bank strategy is vital for companies looking to reduce risk exposure. In this article we explain how to reduce financial risk by implementing bank redundancy.
Batch processing is a method of processing various types of transactions. As the name suggests, transactions are processed in a group or “batch.”
Core Banking, or a Core Banking System, is a back-end system that processes daily banking transactions across all of the various branches of a given bank.
The Federal Deposit Insurance Commission was created in 1933 to reinforce the public’s trust in the American banking system. Since the Great Depression, it has successfully prevented widespread loss of consumer deposits in the event of a banking crisis.
The Federal Deposit Insurance Commission (FDIC) was created to protect deposit holders in the event of a bank failure. In this article we explain how FDIC receiverships work.
IBAN, or an International Bank Account Number, makes it easier and faster for banks to process cross-border financial transactions.
Money transmission is the act of one party receiving currency for the purpose of sending it over to another party.
The Office of Foreign Assets Control (OFAC) is a financial intelligence and enforcement agency under the jurisdiction of the US Treasury Department.
Real-Time Gross Settlement (RTGS) is a system for electronic payments between two banks, where the transactions process and settle in real time rather than being batched.
Two options for financial transaction settlement—differing in both speed and style—here, we’ll look at how both Net Settlement and Gross Settlement work in action.
A banking API is software that facilitates a digital connection between a company and a bank.
A Client Money Account (CMA) is an account opened by a UK and European Economic Area regulated firm to hold money that belongs to one or more of that institution’s clients.
A currency transaction report (CTR) is a report made by U.S. financial institutions aiming to prevent money laundering.
When businesses borrow funds, their lenders have options for protecting against the risks of extending credit.
Sweep accounts are a particular type of bank account where funds are automatically transferred between different accounts to optimize the use of available cash and maximize returns
An Agent of the Payee is a person, entity, or other intermediary specifically appointed by a payee to process and collect payments on their behalf.
An FBO account, or a For Benefit Of account, allows a company to manage funds on behalf of—or for the benefit of—one or more of their users, without assuming legal ownership of the account.
A merchant’s bank account must pay an interchange fee to the card-issuing bank each time someone uses a credit or debit card to purchase something from their store.
An MT940 (Message Type 940) file is a detailed SWIFT statement that provides information about account transactions.
The Bank Secrecy Act (BSA)—also known as the Currency and Foreign Transactions Reporting Act—is a piece of legislation designed to help prevent fraud.