How to Become a Treasury ‘Superhero’

At a recent seminar entitled Analyzing and Auditing Bank Fees, organized by Greenwich Associates and sponsored by Redbridge Analytics, attendees learned some best practices in managing the cost complexities of their company’s bank relationships.

A 2017 survey of treasury priorities conducted by Greenwich Associates found that process automation was the top priority, followed by reduction of hard dollar bank fees, and ensuring liquidity and sufficient cash flow. Next in importance came technology, regulatory compliance, safety, and funding.

Dan Gill, senior director at Redbridge Analytics, opened the seminar by asking the audience why they were interested in bank fees. About 80% were concerned whether their banks charged them correctly and almost 10% wanted more transparency.  According to Dan, to become a treasury ‘super hero’, treasury professionals must ask the right questions:

• How much does our banking cost the company, in total, both globally and in each region where we do business?
• Do we have a complete inventory of all bank accounts and balances at any point in time?
• In the USA, how much do we earn on balances?
• How much does the bank charge to ‘insure’ those balances?
• Do we have a negotiated price list or multi-year contract from each of its banks?
• In which regions of the world do we not have visibility into our usage and cost of banking services?
• Are we familiar with the term “RAROC”?

To answer these questions, treasury professionals have to obtain sufficient data from account statements in order to organize and analyze it. The more banks and accounts the company has, the more data they will be analyzing. With hundreds of accounts spread among tens of banks around the world, it can become a daunting task.

Dan firmly believes that bringing transparency to the company’s bank fees can help a treasury professional stand out within its treasury operations team. “Your banks are critically important vendors and I believe that bank analysis statements are one of the most misunderstood invoices a company pays.” says Dan Gill.  For practitioners like Greg Moore of AutoNation, visibility into actual bank costs is the most important factor. He deplores the overwhelming complexity of bank service definitions, the overabundance of pricing data, the different tiering and product groupings, and variable mathematical formulas, all needed to analyze costs at each bank.

“Part of what we want to uncover today, are the tools available to give you the ability to be effective and achieve the best possible results. In many of the companies that we visit, bank fees are perhaps the most misunderstood part of the treasury operations,” says Dan, who leads the software division of Redbridge. According to him, it is possible to have good control of bank fees, ensure the company is not overpaying its banks, and be able to answer key questions concerning bank servicing.

For example, a major insurance company client, with which Dan has consulted for 10 years, saw its annual bank charges decrease from $15million to $8 million over just a few years using the right tools. “You must also understand how your company uses banking services in order to get the best pricing possible. In the United States, many banks use the EDI 822 to report bank fee information to their clients. Globally, an industry standard called ISO 20-022 file format, also known as the BSB, allows banks anywhere to deliver bank fee reporting to their customers regardless of the location or currency of the account. I think that receiving these standard reports is absolutely essential,” proclaimed Dan. “Each deviation from a standard means time and money spent trying to decipher what each bank sends us”, he added.

Currently, more than 20 banks in 40 countries can deliver the BSB formatted billing statement. In order to effectively compare the data, unique services at each bank must be standardized by assigning accurate AFP codes, but banks don’t necessarily apply the codes consistently.  Fortunately, bank fee monitoring software can map the correct AFP codes to each bank’s services, providing standardization and enabling comparison across regions, departments and banks. This also enables aggregation of service costs and utilization between banks, branches and regions in order to establish a basis for fee negotiations. Thus, practitioners can identify errors, archive fee data, and view service usage trends from their treasury information system.

How should a treasury professional go about becoming a treasury ‘superhero’? “First, establish a baseline using current data: know each bank account, receive all billing data, evaluate and compare prices, justify service purchases, assess the earnings credit and consider the bank choices”, says Dan Gill. “Then you must effectively monitor to identify errors and price increases. You may need to automate the accessibility of standardized statements to identify and notify you of any errors, and to insert an approval process before paying the bank its fees and finally to have regular communication with your banks”.

Active monitoring allows treasury professionals to better predict their bank operations expenses. From Dan’s perspective, treasury managers who know their bank costs and service usage in each account, have visibility to monthly statements and can compare and contrast and compare statements quickly and easily can become a ‘superhero.’ By analyzing and reporting on the cost effectiveness of the company’s bank relationships, diligently pursuing pricing discrepancies and keeping the management team apprised of their successes, they will become a strategic asset for the treasury department.