There are two sides to the account analysis dilemma; establishing the baseline and regular auditing. To adequately solve for the bank fee problem you must do both.
We commonly compare these steps to a spring cleaning of your house. The first step is the big clean; this may seem overwhelming at first but you feel very accomplished once it is finished. Now that you have completed the big clean and things are running smoothly, you must complete regular cleanings to maintain what you just accomplished. Similarly, for the bank fee problem, you first need to establish a baseline, optimize your bank fees, and negotiate with your banks. Second, you need to complete regular audits and analysis.
What is an Account Analysis Statement and Where Did It Come From?
Most fundamentally, the account analysis statement is an inventory of services provided by the bank to a client, a bill for services rendered, and a record of balances and services. These statements can be used as a tool for cash managers to understand the yield equation at their banks and to understand volume, price, and balance trends. Analysis statements are a starting point to understanding exactly the services you utilize at your bank. Long story short, your account analysis helps you identify whether or not you are maximizing the value of your bank relationship.
You may be wondering where the account analysis came from. The ‘Account Analysis Statement’ was first produced in 1978, when banks responded to pressure from their large corporate clients by sharing their own internal profitability analysis used to find the target DDA balance needed to offset transaction fees at the account level.
The Checklist and Frequency
Now that we know what an account analysis statement is and its history, we should dig deeper into the account analysis to understand the content to review and how often. Dan Gill, Redbridge Senior Director states:
“We all know we should be reviewing our bank fee statements. In many treasury departments though, often times it is hard to find the time. Focusing on these factors can help ensure you are reviewing the crucial data points and streamlining the process.”
- Identify Earnings Credit Rate (ECR)
- Calculate true ECR
- Understand ECR tiers (if applicable)
- Reserve reduction
- Float (some banks do not report it and you have to back into it)
- Optimal Balance Usage
- Validate pegged balances and confirm proper sweep to money market
- Excess earnings credits
- Calculation errors
- Negative collected balances
- Service added but not requested
- Unused services
- Punitive services
- Hard charges not payable by balances
- Control related services
- Information reporting
- Contracted price/rate violations
- Unauthorized price/rate increases
- Volume reasonability errors
- Expected volume errors
- Volume discounts (tiered/threshold pricing)
- Charges for waived services
- Multiple price points
- Suspicious descriptions
- Alternative services
- Repair fees
- Manual and paper services
- ‘Default’ services
- Calculation errors
- Invoicing vs. direct debit
- Settlement options
- Contract exception rate pricing expirations
- Electronic statements – 822 and BSB
- Peer comparison
- Bank comparison
- Metrics by the line of business
- Not my account
- Account is closed
- Inactive accounts
- Redundant accounts
- Billing account structure and settlement accounts
- Account maintenance versus all other service items billed at the account level
As you can see, there are several factors to review. Your awareness level has to be on high when it comes to the billing aspect of your bank relationship.
Problems Arise When Statements Are Not Reviewed
We often see a set of common problems arise when any number of the above factors go unchecked; accounts that are thought to be closed are really not; clients are still paying account maintenance fees; services have been added without being requested; multiple price points for the same service and pricing or rates change without any prior notification. If any of these issues arise, it is time to speak with your relationship manager.
It is important to review and rationalize the accounts that are actually charged with the fees for a relationship. In an engagement we started a few years ago, we noticed that one of our client’s bank relationships was set up with a fairly dormant account listed as the parent. This account was set up so that the state tax department could auto-debit taxes once a year. Because it was also listed as the parent account, each month, on the 20th, the bank would hit this account for fees. The problem was, given that this was an account where usually there were no balances, guess what happened each month on the 20th? The auto-debit took place, the fees overdrew the account, which in turn cost the company more fees. At the end of the month, the account was funded without the analyst knowing why it was overdrawn (they funded it because they knew it only as a tax account). This happened every month for years.
Unfortunately, we see cases like these far too often. These are cases that could be eliminated if analysis statements were reviewed thoroughly and consistently. The process may seem overwhelming but it does not have to be. Redbridge’s teams of experts can help you identify and correct many of these and other common errors. Contact us to start the discussion.