When thinking about the typical set of cash management services that banks provide to corporations, there is no reason that a bank should be treated differently from any other corporate vendor in order to be paid for its services, writes Tamir Shafer, Senior Director at Redbridge Debt & Treasury Advisory.

Just like other vendors that provide invoices detailing services/products rendered, each month, banks provide their own invoice-like report, clearly identifying services they provided. This report includes each service provided, associated volumes, price points and total costs due to be paid to the bank by the client for these services. This report is known in the U.S. domestic market as the account analysis.

So why is that when we reviewed more than 100 distinct corporate-bank relationships, only six passed through a process remotely as rigorous as the typical AP process?

There are many answers or reasons. Here are the most common explanations we have heard from treasurers and cash managers:

  • There is no simple way to validate and confirm that the volume of activity reported on each service line item listed on the account analysis is what the company actually processed at the bank.
  • The bank is paid via auto-debit each month.
  • The account analysis is system generated, so there are few, if any, mistakes or errors.
  • We believe a spot check of month-over-month totals is sufficient.
  • ECR and associated earnings credits usually offsets most of the fees anyway.
  • It’s not a priority—treasury teams do not have time/resources to do it.

Are these valid business reasons, or excuses? Asked from a different perspective, which department should really be responsible for reviewing the accuracy and validity of charges associated with the account analysis: accounts payable or treasury?

As you ponder that, let’s dive into one of these explanations to try and gain more insight and perspective: “There are few, if any, mistakes or errors.”

Through our research and analysis, we have identified that on average there are 4.68 errors or billing violations per 100 services listed on each account analysis. A billing violation can be identified as any of the following:

  • Arithmetic or calculation error
  • Changes in pricing or ECR without approval
  • Multiple price points existing for the same service
  • Pricing not reflecting agreed volume-based price tier structures
  • Services added without approval

In reviewing more than 300 account analyses in the past year, we have found that for every $1,000 in gross fees, there is $54.44 in billing violations and errors. If, for example, a company is being assessed $50,000 in gross monthly fees by its banks for cash management services in a typical month, they might expect billing violations and errors of $2,722. Over the course of a year, that amounts to $32,664 in billing violations and errors. Perhaps a “spot-check” is not as sufficient as many believe it is.

Kristen Seduski, cash manager of Belk Inc. utilizes a third-party advisor to monitor monthly bank fees rather than saddling AP or treasury with the burden of handling it. She noted that reviewing multiple account analysis statements each month and determining if the price points, services and volumes are correct would be a very tasking role for treasury, especially given its higher priorities and typically limited resources and time.

Seduski added that the cost of software to monitor bank fees on account analyses proved to be more expensive than utilizing a third party. “I felt we needed the monitoring, and we continue to need it to maintain this best practice as it has proved beneficial to our company,” she said. “All banks I’ve worked with have been, and continue to be, understanding when I advise them of billing violations, and they have provided us with all credits requested. The fees and time my team has saved, and will continue to save, far outweigh the cost of the third party providing this service.”

Regardless of the tactics taken, it is clear that a review is appropriate, needed, and in order. A bank is still a bank, and a vendor too. Ensuring it is billing appropriately in no way reduces a bank’s value, and only helps to ensure that it does not circumvent the important vendor payment approval process.

This article was first published online by the Association for Financial Professionals:

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