in the United States
Major opportunities can be found within complex treasury processes
The complexity of treasury operations in the United States mainly lies in bank invoicing practices, check processing systems and yield deposits. Treasury departments must be organized to properly manage these issues.
While flat-rate charges remain the norm in Europe, US companies are used to having a price for each service. To facilitate identification of the various cash management services offered by banks, the AFP (Association for Financial Professionals) has defined a nomenclature attributing a code to each of them. This nomenclature, containing nearly 3,000 references, was revised in 2013 to account for changes in market practices. This resulted in 247 new codes added, 443 others updated and the removal of those relating to obsolete services.
From a corporate treasurer’s perspective, the existence of AFP Codes should theoretically facilitate the monitoring and comparison of cash management costs, although the reality is often very different. Firstly, not all banks use it, sometimes favoring internal codes which make comparisons more difficult. Secondly, account statements include recurring errors, with as many as 20% of the codes stated incorrectly relative to the services actually invoiced.
For BtoB companies, a second challenge lies in organizing the system for processing payments by check. In order to reduce collection times for these payments, attempts at reform of the US postal service further include outsourcing of management of these checks to specialist service providers or the transition to electronic invoicing. Some banks have also developed outsourcing services designed to determine suppliers’ favorite payment methods (checks, ACH transfers, etc.) and to make payments on behalf of companies.
Offsetting or interest on deposit accounts?
Another issue concerns the remuneration of current account deposits, now permitted since the abolition of Regulation Q by the Federal Reserve in July 2011. Banks offer remunerate credit balances, leaving companies to decide whether to offset the amount against their cash management invoice and/or receive interest payments. In general, it is better to offset the remuneration against bank charges wherever possible rather than opt for interest payments, since the first option is worth twice as much as the second on average.
38% saving on average
As in Europe, there is also a trend towards consolidation of cash management banks. The various consultations completed by Redbridge on behalf of US companies and subsidiaries of foreign companies have revealed average potential savings on cash management fees of 38%, and up to 60% in some cases. This consolidation trend is restricted by some institutions’ limited cash management capacities, however, and the lack of comprehensive national coverage by some large banking networks. This last point often makes the use of local banks unavoidable.