Virtual account structure streamlines cash management
Charter Hall is one of Australia’s leading fully integrated real estate groups. The company owns and manages a portfolio of nearly 1,400 commercial properties in the key sectors of office space, industrial and logistics facilities, and retail and social infrastructure locations.
Charter Hall is also an active participant in the real estate finance market through its investments in these commercial properties. The group experienced a period of significant growth, during which the value of its funds under management more than tripled in five years. Group Treasury is a centralized function of the company that is responsible for debt and financial risk mitigation strategies, and for creating financing solutions in more than 40 funds.
From a liquidity management perspective, each of the Charter Hall funds has its own balance sheet. Previously, each fund also had its own statutory trust bank account in each state where it collects rent, in accordance with government regulations. “So, for example, if a fund had assets in all seven Australian states, it would have to open bank accounts in each state,” says Michael Thomas, director of treasury operations. “In our legacy environment, each fund also established bank accounts at different operating levels, which multiplied the total number of accounts.”
Of Charter Hall’s hundreds of bank accounts, the reconciliation processes were manual. Then, after reconciling a payment to the appropriate bank statement, the team had to calculate how much to transfer between their different account levels and manually transfer the money. “Once we knew how much a tenant had paid, we would manually remit that money from the statutory trust account to the property level account and then from the property account to the fund level account,” says Ian Ko, director of treasury at Charter Room. “This whole process was very laborious and had an impact on our visibility on our cash flow situation. “
To automate much of the manual workload, while improving controls and visibility of cash flow, Charter Hall has embarked on a project to restructure its transactional banking platform. The project team included key stakeholders from treasury, shared services, property management and the fund team, as well as the company’s transactional banking and external service providers.
The team adopted the Agile values and principles of project management and called on experienced Scrum masters. “We used various Agile tools including wall panels to define project goals, workflows and action items,” Ko explains. “We used stand-up [meetings] as a forum to communicate project updates and as an opportunity for different stakeholders to discuss ideas to optimize the final solution.
“This was largely a joint initiative with our suppliers,” he continues. “Our transaction bank and our ERP [enterprise resource planning] the supplier had representatives who attended our stand-ups on a daily basis.
From a solution perspective, the first step was to consolidate multiple transactional banking platforms into one with Westpac Digital Institutional Bank. Charter Hall emphasized the importance of not only reducing its number of bank accounts, but also developing a scalable solution that will minimize the number of new bank accounts as the business continues to grow.
The project management team decided to use Westpac’s virtual bank account product, which they further enhanced by integrating it with Charter Hall’s ERP system and GTreasury cash management system. Now, Charter Hall has a statutory trust account for each state and uses the virtual account structure to separate each of the balances in those accounts between the different company funds.
“We have an algorithm to generate a virtual account number for each of our tenant clients, within each fund and in each state,” explains Thomas. “Our ERP system assigns each tenant customer a unique identifier and then automatically generates invoices using the tenant identifier. The algorithm for creating the virtual account number includes the tenant ID. The integration between our ERP system and the Westpac banking platform means that when the tenant pays using that tenant ID, regardless of the payment method, Westpac automatically credits the correct virtual account.
To improve internal controls, Charter Hall implemented the reconciliation module in the ERP system. The project team established a daily flow of bank transactions, which the ERP system automatically reconciles with the general ledger. This process limits the need for human intervention looking for exceptions rather than collecting data.
The second major area of improvement is the automated sweep of cash between different levels of company accounts. “This further strengthens internal controls,” says Thomas. “Overall, we distilled the receiving, reconciling and cashing out of a process that took weeks to an automated daily process. This change improved the company’s liquidity position and allowed the project team to develop a new cash flow forecasting process using Westpac and GTreasury.
Finally, automating the solution made it much easier for Charter Hall to transition to a work-from-home environment when Covid-19 struck. “Our experience at the start of the pandemic, where there was a shift to a work-from-home environment, was fluid and seamless,” Ko said. “The fact that we were able to pivot so quickly is testament to the fact that the solution was working as expected. “