There are many concepts in which a virtual account can be deployed. In this second article on ‘How to setup virtual accounts in SAP’, we depict the concept that can be implemented in SAP the easiest without needing specialized modules like SAP Inhouse cash; all can be supported in the SAP FI-CO module.

In the process, we rely on a simple set of building blocks:

• GL accounts to manage positions between the OpCo’s and Treasury and GL accounts to manage the external cash balance.
• Receipt and processing of external bank statements.
• On the external bank statement for the Master Account, an identifier needs to be available that conveys to which virtual account the actual collection was originally credited. This identifier ultimately tells us to which OpCo these funds originally belongs to.

How to implement virtual accounts in SAP

This part assumes that the basic FI-CO settings for i.e. the company code and such are already in place.

Master Data – General Ledger Accounts

Two sets of GL accounts need to be created: balance sheet accounts for the representation of the intercompany positions and the GL account to represent the cash position with the external bank.

These GL accounts need to be assigned to the appropriate company codes and can now be used to in the bank statement import process.

Transaction code FS00

House bank maintenance bank account maintenance

In order to be able to process bank statements and generate GL postings in your SAP system, we need to maintain the house bank data first. A house bank entry comprises of the following information that needs to be maintained carefully:

1. The house bank identifier: a 5-digit label that clearly identifies the bank branch
2. Bank country: The ISO country code where the bank branch is located.
3. Bank key: The bank key is a separate bank identifier that contains information like SWIFT BIC, local routing code and address related data of your house bank

Transaction code FI12

Secondly, under the house bank entry, the bank accounts can be created.

1. The account identifier: a 5-digit label that clearly identifies the bank account
2. Bank account number and IBAN: This represents the bank account number as assigned to you by the bank.
3. Currency: the currency of the bank account
4. G/L Account: the general ledger account that is going to be used to represent the balance sheet position on this bank account.

Transaction code FI12 in SAP ECC or NWBC in S/4 HANA

The idea here is that we maintain one house bank and bank account in the treasury company code that represents the Master account as held with your house bank. This house bank will have the G/L account assigned to it that represents the house banks external cash position.

In each of the OpCo’s company codes, we maintain one house bank and bank account that represents each of the “virtual” bank accounts as held with your house bank. This house bank will have the G/L account assigned to it that represents the intercompany position with the treasury entity.

Electronic Bank Statement settings

The Electronic Bank Statement (EBS) settings will ensure that, based on the information present on the bank statement, SAP is capable of posting the items into the general or sub ledgers according to the requirements. There are a few steps in the configuration process that are important for this to work:

1. Posting rule construction
   Posting rules construction starts with setting up Account symbols and assigning GL accounts to it. The idea here is to define at least three account symbols to represent the external Cash position (BANK), the IC position with OpCo1 (OPCO1) and thirdly the IC position with OpCo2 (OPCO2). A separate account symbol for customers is not required in SAP.
   For the account symbol for BANK we do not assign a GL account number directly in the settings; instead we will assign a so-called mask by entering the value “+++++++++”. What this does in SAP is for every time the posting rule attempts to post to “BANK”, the GL account as assigned in the house bank account settings is used (FI12 or NWBC setting above).
   For the account symbol OPCO1 and OPCO2 we can assign a dedicated balance sheet GL that represents the IC position with those OpCo’s. These GL accounts have already been created in the first step (FS00).
   Now we have the account symbols prepared, we can start tying together these symbols into posting rules. We need to create 3 posting rules.
   Posting rule 1 is going to debit the BANK symbol and it is going to credit OPCO1 symbol.
   Posting rule 2 is going to debit the BANK symbol and it is going to credit OPCO2 symbol.
   Posting rule 3 is going to debit the BANK symbol and it is going to credit a BLANK symbol. The posting type however is going the be set to value 8 “Clear Credit Subledger Account”. What this setting is going to attempt is that it will try to clear out any open item sitting in the customer sub-ledger using “Algorithms”. More on algorithms a bit later.
   As you can imagine, posting rules 1 and 2 are applicable for the treasury entity. Posting rule 3 is going to be used in the OpCo’s EBS process.
   Transaction code OT83
2. Posting rule assignment
   In the next step we can assign the posting rules to the so-called “Bank Transaction Codes” (or BTC’s like i.e NTRF) that are typically observed in the body of the bank statements to identify the nature of the transactions.
   To understand under which Bank Transaction Code these collections are reported on the statement, you typically need to carefully analyze some sample statement output or check with your banks implementation team for feedback.
   Important to note here is to assign an algorithm to posting rule 3. This algorithm will attempt to search the payment notes of the bank statement for “Reference Numbers” which it can use to trace back the original customer invoice open item. Once SAP has identified the correct outstanding invoice, it can actually clear this one off and identify it as being paid.
   Transaction code OT83
3. Bank account assignment
   In the last part we can then assign the posting rules assignments to the bank accounts. This way we can differentiate different rule assignments for different accounts if that is needed.
   Transaction code OT83
4. Search Strings
   If the posting rule assignment needs more granularity than the level provided in step 2 above here (on BTC level), we can setup search strings. Search strings can be configured to look at the payment notes section of the bank statement and find certain fixed text or patterns of text. Based on such search strings we can then modify the posting behavior by for instance overruling the posting rule assignment as defined in step 2.
   Whether this is required depends on the level of information that is provided by the bank in the bank statements.
   Transaction code OTPM

Importing and processing bank statements

We should now be in good shape to import our first statements. We could download them from our electronic banking platform. We could also be in a situation where we already receive them through some automated H2H interface or even through SWIFT. In any case, the statements need to be imported in SAP. This can be achieved through transaction code FF.5. The most important parameters to understand here are the following:

1. File parameters: Here we define the filename and storage path where our statement is saved. We also need to define what format this file is going to be, i.e. MT940, CAMT.053 or one of the many other supported formats
2. Posting Parameters: Here we can define if the line items on the bank statements are going to be posted to general or sub-ledger.
3. Algorithms: Here we need to set the range of customer invoice reference number (XBLNR) for the EBS Algorithm to search the payment notes for any such occurrence in a focused manner. If we would leave these fields empty, the algorithm will not work properly and will not find any open invoice for automatic clearing.

Once these parameters are maintained in the import variant, the system will start to load the statements and generate the required postings.

Transaction code FF.5

Closing remarks

Other concepts could be where a payment factory is already implemented using i.e. SAP IHC and the customers wants to seek additional benefits by using the virtual account functionality of its bank.

This is the second part of a series on how to set up virtual accounts in SAP. Click here to read the first part. A next part, including more complex concepts, will be published soon.

For questions please contact Ivo Postma.

The importance and benefits of delivering a digital strategy for treasury operations are well understood. For many organizations, however, there is a significant barrier that may prevent them from being able to successfully implement. In this article, we discuss how to overcome that barrier, resulting in an accelerated process to achieve a true smart treasury function at lower overall cost.

As discussed in the recent joint-whitepaper from Zanders and Citi on the future of corporate treasury, both corporations and financial institutions should be focusing their attention on developing a digital treasury strategy. This is being driven by the increasing pace of regulatory change, continuously evolving business models, volatile economic conditions, fast-growing technological developments and the benefits of a strategically focused ‘smart treasury’ – one that utilizes the latest technology to be more integrated, automated and optimized, adding value to the business.

Although the benefits of going digital are well recognized at a company level, they are not at the treasury level – while two-thirds of respondents to a digital preparedness survey indicated their organizations are already engaged and experimenting with digital solutions, only 14% had a digital strategy in treasury.

Strategy void

We know the levels of adoption of a digital treasury strategy vary greatly between organizations – at the top end of the scale, a number of trailblazers have already developed theirs and are actively implementing, firmly on their way to achieving the smart treasury vision. These are normally financial institutions and large multinationals who utilize in-house technology teams containing a pool of resources dedicated to treasury technology and digital transformation. They may also have ample means to utilize external advisors to deliver on their behalf.

A void exists, however, comprised either of corporates that are yet to transform from traditional MS Excel-based methods to an ‘efficient treasury’ function, or those that have already traversed the transformation pathway but are unable to progress further to ‘smart’.

For those yet to progress to an ‘efficient’ function and realize the benefits of centralization, standardization and automation, getting the basics right is the first hurdle to overcome before digital transformation can be considered. To do this, they should look to select and implement a treasury management system (TMS) and, where appropriate, run a fully operational in-house bank and payment factory. However, in this scenario, the size and scale of their business makes it unlikely that in-house teams with the requisite knowledge and skills to do this exist, and the cost of external advisory projects can be prohibitive. Their barrier is one of having the right structure and resources in place.

For those that have already traversed the treasury transformation pathway and are experiencing the benefits of their new ‘efficient treasury’ function, such as improved cash management, reduced transaction costs, standardized processes and increasingly effective risk management, ‘smart treasury’ is the natural next step. But they also face similar significant barriers in developing and implementing their digital treasury strategy to those struggling to progress to ‘efficient’ – the lack of in-house teams and no budget for advisory projects. Once again, the issue of structure and resources is the barrier.

Progressing through efficient to smart

In our discussion of the aforementioned joint-whitepaper, Ron Chakravarti, Citi’s Global Head of Treasury Advisory, commented: “Today, more than ever, the treasury function needs to include people who are technologically savvy. People who are able to comprehend what is changing and how to best deploy technology… Treasury teams recognize that they need to have a digital strategy, but many of them are not fully equipped to define one.”

Looking more closely at the current team structure of corporates that struggle to achieve their efficient or smart aspirations, it is clear they either have difficulty in finding technologically savvy people, or this requirement is simply being overlooked. The ways that organizations try to respond to the resourcing challenge varies. Some choose to divide the role among existing team members, others merge the requirements into an existing role, and in some cases a dedicated treasury systems manager role is created.

However, none of these solutions are optimal, as to effectively deliver digital change the following niche set of ‘digital treasury’ skills are required:

1. Intricate knowledge of the business coupled with detailed working and technical knowledge of their treasury operations and a strong understanding of corporate treasury principles in general.
2. Well versed in the latest technologies on offer, and any future technology in the pipeline, that could be effectively utilized by the organization based on their current and future needs.
3. Practical experience of implementing and integrating a variety of new digital technologies, combined with strong general IT skills and awareness.

Finding the right resource in a niche market is a challenging one and finding a solution to overcome this becomes critical to moving forwards. We propose a way to remove this barrier and deliver a digital treasury strategy in a lean and cost-effective way, while opening the door to a multitude of further opportunities and benefits for your new ‘smart treasury’ function.

An alternative way to manage your treasury systems

The creation of a dedicated treasury systems manager role appears to be the best of the current solutions to the resourcing barrier, but in practice this is a difficult role to fill due to a trade-off between cost and experience. How can organizations find a senior resource not only with strong experience and understanding of treasury, but with excellent knowledge of the latest treasury technology trends, experience implementing them, and a network of other financial technology professionals on call to resolve issues and propose new ways of working?

One solution may be to form a treasury technology partnership with a third-party, who will assume all day-to-day treasury systems management tasks while defining and delivering the digital treasury strategy. This suggestion is not the costly advisory solution previously mentioned that can be prohibitive for corporates struggling to transform. Contrary to expectations, there are savings to be made and other significant benefits to be enjoyed when a treasury technology partnership is compared to employing a dedicated treasury systems manager.

Treasury technology partnership benefits

Cost reduction – your partner will be able to perform the day-to-day treasury systems management service at lower cost than an in-house treasury systems manager. This is because it can be delivered by a pool of dedicated systems admin staff, allowing the benefits from economies of scale to be realized. The quality of service would also improve based on the collective knowledge of the partner, who will also be managing the same systems for other clients.

Accelerated strategy – your partner will be uniquely placed to define and deliver your digital strategy quicker than can be achieved by the treasury team or a stand-alone systems manager. They would be able to achieve this by applying extensive company-specific knowledge gained during the partnership, along with their awareness and experience of the latest technology. They will already have solutions for common treasury issues and will be supported by their in-house team of treasury technology professionals.

Additionally, the accelerated strategy could be delivered at a lower cost than any discrete transformation advisory project, as the technology partner would benefit from already having a strong understanding of your business’s strategic and technical requirements. Time spent on scoping would be vastly reduced.

Ad-hoc – for similar reasons to the accelerated strategy, the treasury technology partner would also be able to deliver ad-hoc projects at a much more reasonable cost than engaging in an advisory project. Tasks such as systems selections, technical changes required by regulatory changes, market reform or adjustments in generally accepted best practice, could be delivered swiftly as the technology partner would already be experienced in delivering these for other customers, while also being aware of your specific technical requirements.

Exponential technology – the use of a treasury technology partner will open up the possibility of always being able to deploy the latest technology. For example, Zanders are already experienced in delivering technological improvements utilizing robotic process automation (RPA), machine learning (ML), artificial intelligence (AI), external and internal APIs, custom applications/middleware, and a multitude of other exponential technologies. The technology partner will already be experienced in the design, implementation and use of these with their other clients, and will bring significant experience in how to deliver these, in conjunction with their understanding of your organization’s strategic and technical requirements.

Summary

Zanders has a wealth of experience in this field with numerous awards and recognitions for our technological solutions, and already performs similar services for several organizations. Entering into a Zanders Treasury Technology Partnership to deliver your first steps to an efficient treasury, perform day-to-day systems admin tasks, and develop and implement the digital treasury strategy, is an ideal solution for those corporates lacking the appropriate resources to move from ‘efficient’ to ‘smart’.

Moreover, it gives an organization access to a pool of treasury professionals at all levels of seniority, to continuously benefit from their collective experience and skills. This expertise is available at a lower cost than the alternative of employing an in-house treasury systems manager or engaging in advisory projects. For cases where the current systems admin tasks are merged into one or several existing roles, it will allow core treasury team members to focus on treasury management by removing the burden of systems management placed upon them, while also improving the quality of the systems management service.

Finally, it opens up the possibility of greater use of a multitude of exponential technologies, all resulting in cost savings, increased operational efficiencies, improved risk management, and a technology landscape that is scalable and rapidly deployable. This will ensure you achieve your smart treasury vision for a function that is well placed to support your business going forward.

Gasunie, which is wholly owned by the Dutch government, transports natural gas through more than 15,500km of pipelines in the Netherlands and Germany. In addition to these pipeline systems, Gasunie’s assets comprise hundreds of installations, including one for liquefied natural gas (LNG), an LNG import terminal and facilities for underground gas storage. Every year, the company transports approximately 125 billion cubic meters of natural gas, equal to about a quarter of Europe’s total gas consumption. As a bona fide gas country, the Netherlands has become ‘Europe’s gas hub’, the central trading place for gas.

Terrific challenge

One of the government’s key objectives is to make the Netherlands one of the most sustainable countries in Europe by 2020. To limit climate change, the country is currently working on an energy transition: a switch to a CO2 free energy supply. This means that fossil fuels will increasingly be replaced by fully renewable energy sources, such as solar, wind and geothermal energy, and biogas. Due to this, natural gas, which is undisputedly the least polluting fossil fuel, has now been cast in a somewhat less-than-positive light. “You just have to mention energy transition and the level of uncertainty is very obvious,” says Janneke Hermes, manager of corporate finance & risk advisory at Gasunie. “And there are plenty of givens. But many people don’t have the right information – about the reliability of energy sources, their costs and what they can be used for. Solar panels on roofs have become symbolic of renewable energy, but even if they covered all the roofs in the Netherlands, they could only generate a limited percentage of the country’s energy requirements. So much more needs to be done. The role played by gas is, and will remain, crucial in the energy transition. This will increasingly be renewable forms of gas, such as gas from biomass, or hydrogen that can be obtained from wind energy. But natural gas also has a role to play, because it can reduce CO2 emissions significantly using it instead of coal in power stations. The big challenges we face are how to connect all the energy lines in the near future and how it should all be organized. It’ll take a lot of time and money and it constitutes a very substantial challenge for the Netherlands and the rest of Europe.

Hydrogen

Gasunie is already involved in a number of innovative projects. “Many impressive projects are already being carried out, by players big and small,” explains Hermes. “TenneT, for example, wants to harvest offshore wind energy on the North Sea, on a large scale, and our contribution can be to convert the excess electricity into hydrogen and transport it via existing gas pipelines to land, where it can be used as renewable fuel.” Adding CO2 to hydrogen produces methane, which can be introduced to the gas network as a gas. A further advantage of doing this is that hydrogen, or the gas that it helps to produce, can be stored as a buffer for subsequent energy generation or use. Many industries already use hydrogen in their production processes, continues Hermes. “Naturally, we are exploring how, with the existing infrastructure in our country, we can optimally exploit and facilitate this fact.”

Into Europe

In addition to its network in the Netherlands, Gasunie also has one in Germany, which also plays a key role in the security of supply of natural gas to the Netherlands. “Our number one strategic pillar is to remain the reliable, safe player in the Netherlands when it comes to gas infrastructure,” assures Hermes. “To this end our focus is very much on the storage of energy, during both the summer and winter and on a daily basis too. In other words, monitoring peaks during the day and deciding how to cope with them. Our second pillar is the facilitation of the gas markets elsewhere in Europe.”

While in the Netherlands gas has fallen out of favor – as a result of the earthquakes in Groningen, for example, and because it’s a fossil fuel – the opposite is true in the rest of Europe. Gasunie’s strategy looks beyond the Netherlands, Belgium and Germany. “We are looking further afield – the gas market is developing very strongly outside the North European area. The further you venture into Europe the more popular gas seems to be, to the extent that in some regions it’s akin to an emerging commodity. Thanks to our knowledge and expertise we can help, facilitate and invest in those markets. For example in the construction of new pipelines and networks, and new LNG terminals. I’m talking about countries in which we want to accumulate experience step-by-step, starting off by providing advice and service. Later this can be expanded into participation in a consortium in proportional stakes. We want to build up our presence incrementally.” According to Hermes, the third strategic pillar focuses on the afore-mentioned energy transition. “We are increasingly and emphatically demonstrating just how important a role we can play in all this. By supporting solar and wind energy, offering gas as a back-up, and making our own products more sustainable, or green. Green gas, by the way, is the same quality as natural gas. We are working on innovations that should lead to an increase in scale in the supply of green – so sustainable – natural gas.

Diversified supply

Alongside the transport of gas, Gasunie is also focusing on heating networks based on geothermal energy or residual heat. “Together with Eneco, the Port of Rotterdam Authority and Warmtebedrijf Zuid-Holland, the so-called Heat Alliance, we are trying to make optimum use of residual heat produced by the Port of Rotterdam for heating in the immediate region.

We are striving for open access in that market, with all customers and suppliers enjoying access to the infrastructure. Independence has always been a key aspect of what we do; we have no interest in the commodity. We make it possible for the various players – such as producers, customers, traders – to find one another. Our range of activities is currently very broad, from doing the right things today to exploring what’s possible in terms of tomorrow’s services and facilities and how we can contribute to their realization.”

The energy supply in the Netherlands is strongly dependent on gas. In 2016, a third of all energy in the Netherlands was supplied by natural gas. And due to the reduction of production from the Groningen field as a result of earthquakes in the province, its dependence on countries like Russia and Norway seems to have increased. This is why Gasunie wants the supply of gas to be as diversified as possible, says Hermes. “Customers find it important to have options; it prevents unilateral dependence. In this respect, southern Europe is gaining in importance because that’s where gas from the Middle East comes in. As a supplier of gas, Russia is still a very important partner for all of Europe, but this only strengthens the argument that LNG could be an excellent way of realizing the desired diversity.”

New Role

But just what do all these developments mean for the activities of Gasunie’s treasury? “Having made the necessary investments in the Netherlands’ existing gas infrastructure, we can now generate the kind of cash flow we expected,” insists Hermes. “Consequently, this will reduce the amount of debt we’ll need to take on. We have a reasonably diverse long-term loan portfolio and once that’s matured we’ll no longer need to refinance the full amount, which translates to a moderation of our financing needs. For our international activities, however, it’s not yet clear how much funding we’ll need. The same is true when it comes to green gas and supercritical water gasification projects. Relative to our assets, these all represent modest investments, but we don’t yet know how big they will become in future. Once their success has been proven, we’ll scale up projects like these. In terms of financing requirements, ours are indeed very diverse.”

That diversity has not escaped the attention of Gasunie’s treasury, while Hermes’ own role has also changed and become more diverse. “Suppose we’re talking about a benchmark loan of €500 million, it won’t be a problem because we’ve done something similar in the past. But if the discussion is about a new biogas hub with several farmers from Twente, for example, the dynamics become very different. We don’t yet have a contingency plan for something like that so we’ll need to be extremely flexible.” When financing these new, different types of projects, the sums involved are a lot lower, but the same cannot be said about the time the treasury has to invest. “That can sometimes be inversely proportional,” concedes Hermes. “But the contacts are also very different and this calls for a completely different skillset to what was needed before.” It also means that advice is asked more frequently from within the organization, she acknowledges. “Whereas we initially provided corporate financing, we now also extend loans to the business units themselves. This too calls for a different dynamic.”

Sustainable Cooperation

The first advisory role played by Zanders in Gasunie’s treasury activities dates all the way back to 2002, says Hermes. “So for me I’ve only known collaboration with Zanders. Back then it included SAP implementation, in which all kinds of instruments had to be configured. Since then we’ve been in constant contact; whenever the treasury needed support, we contacted Zanders. In May 2016, Lisette Overmars even took on the role of interim treasurer for several months. Our most recent collaboration was the adaptation of our treasury statute, which was necessary because we wanted our treasury policy to be aligned with our new objectives. In a broader context, Zanders has always proved an excellent sparring partner, one that asks us the right questions and provides the necessary structure for tackling the challenges our treasury faces. It’s what I’d define as an excellent and sustainable collaboration.”

If you would like to know more about treasury solutions in the energy sector, please contact our Partner Laura Koekkoek.