Clever payment transactions with virtual accounts

May 2020 – Companies with many customers or tenants process thousands of deposits and debits every day – an enormous administrative effort. So-called virtual accounts can help: They enable efficient management of payment transactions, reduce complexity – and simultaneously minimize the number of incorrect entries.

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TAG Immobilien AG, for example, works with virtual accounts for its residential units. And this is how it works: Each tenant transfer their rent to “his” individual virtual account and even electricity or water suppliers draw their money directly from this account. That way, the payments are booked swiftly and easily, errors are avoided and the entire accounting system is optimized.

The listed MDax company managed more than 85,000 residential units at the end of 2019 financial year. TAG Immobilien AG´s main locations are in the greater Hamburg and Berlin Areas, in the Salzgitter and the Thuringia / Saxony regions as well North Rhine-Westphalia. Since the beginning of the year TAG has also been operating in neighbouring Poland. For the tenants of the housing company the situation is clear: They pay their rents – whether by standing order or indidual transfers - at the beginning of the months. But what does the whole thing look like on the residents side?

TAG Immobilien AG spent a long time searching for a solution to manage the masses of incoming and outgoing payments with at the same time rapidly growing portfolio of residential units. The company, like many others, found a solution in the “virtual accounts”. “A virtual account is an account that can be used normally with an IBAN and BIC, but is not open in the banking system,” says Stefanie Buhtz, Head of Department in Cash Management Sales segment at Hamburg Commercial Bank. TAG Immobilien currently holds just under 20,000 of these accounts at Hamburg Commercial Bank.

In a few years the company intends to have exceeded the sound barrier of 100,000 residential units in the portfolio. Although this economic development is very pleasing for the company, the tasks arising from this for the company’s back-office administrative staff are equally challenging. Assuming full occupancy, 100,000 units also entails 100,000 individual rental payments. Month after month. Furthermore, bills have be paid to electricity suppliers, water suppliers or waste disposal companies for the individual residential blocks. These are also handled by TAG Immobilien on behalf of the individual tenants and entire buildings.

This is how a virtual account works

This is how a virtual account works (graphic representation)

Time and cost savings

“The bureaucratic effort for such a large number of contracts and payment transactions, with monthly incoming payments by tenants and outgoing payments to water and electricity suppliers is immense,” says Ulrike Bondkirch. The authorized signatory [Prokurist] manages the Financing and Payment Transactions department at TAG Immobilien. It is not so long ago that all tenants transferred their rent to one account. With roughly 85,000 residential units this would be almost unthinkable today “The effort for this was enormous – and would simply no longer be conceivable today,” says Ulrike Bondkirch. A huge team of accountants - even if supported by modern technology – would have to spend days to check whether all tenants paid the right amount of rent on time or whether the intended purpose and IBAN are correct.

For the tenants of TAG Immobilien, the use of virtual accounts changes nothing: Each of them transfers the rent to an individual virtual account. This makes it very easy to see whether the rent has been paid on time and in the correct amount. Bundles of virtual accounts are each assigned to the same real account, however. This means that the transactions taking place in the virtual accounts are also credited to or debited from the real account immediatly. The payments are automatically assigned in financial accounting through the electronic bank statement notifications.

Hamburg Commercial Bank´s clients benefit exclusively from the virtual accounts: The automatic assignment of payments optimizes the accounting by making entries quicker and easier. “Virtual accounts mean an enormous gain in time for our company thus a significant cost saving,” Ulrike Bondkirch confirms.

“There is a one-to-one relationship and 100% assignment,” says Stefanie Buhtz, identifying the main advantage of virtual accounts. Incorrect entries or lengthy searching for missing puzzle pieces in a transfer or direct debit are de facto a thing of the past. The same applies both to payments made by tenants and to debits, for example from public utilities or other suppliers.

“There is a one-to-one relationship and 100% assignment.”

Stefanie Buhtz, Head of Department in Cash Management Sales segment at Hamburg Commercial Bank

Attractive solution also for booming healthcare industry

The countless advantages of virtual accounts also convinced management of PrivatCard AG in Dusseldorf years ago. The special service provider manages parts of the payment transactions for local pharmacies and especially for pharmacies of large hospitals, including receivables management for end customers. “Pharmacies face particular challenges when it comes to supplying patients with drugs, especially in the case of outpatient care. Here solutions are needed that ensure smooth processes and appropriate communication with clients,” says Markus Feck, Legal Counsel of PrivatCard AG. The special service provider on behalf of clinics prepares and sends transparent bills, including copies of prescriptions, duplicate bills and transfer forms, ensuring the prompt settlement of unpaid amounts. “Furthermore, we answer all questions that end customers have about invoice bill competently and promptly” says Anke Kühne, Head of Customer Service.

From expensive anti-cancer drugs to costly aids for the sick – the demand for products, above all from hospital pharmacies, is enormous. The payment transactions in these cases are equally numerous. “There are easily hundreds of thousands each year,” Anke Kühne estimates. If every client were to pay to the same account, the effort would be immense. That is exactly why the Dusseldorf company has been relying on virtual accounts at Hamburg Commercial Bank for years – so that the incoming payments of clients can be clearly assigned to specific pharmacies – and the payment processes is kept as digital and lean as possible. Ultimately, all virtual accounts flow back to a collective account.

“In addition to the efficiency, lower costs and saved time, virtual accounts have another major advantage,” says Torsten Rösner, Sales Manager Cash Management at Hamburg Commercial Bank: “The funds of different customers are guaranteed not to be mixed up. In this case, every pharmacy can be certain that they will also receive their money.”