RFPs: Their Role in Effective Corporate Treasuries

In today’s environment, corporate treasuries often select product and services provided by banks and third-party processors and technology vendors globally. In many cases, market pressure enables treasury to acquire the right products and services at fair price. However, the request for proposal (RFP) is an effective tool for the process of acquiring new products and services, and a well-designed RFP will assist an organisation in selecting the best at a reasonable price, as well as ensuring long-term mutually rewarding relationships with providers.

Goals

There are different goals that treasuries seek to achieve by using RFPs. Principal uses include improving liquidity management, expanding bank credit facilities and accessing internal cash. In addition, corporate treasury uses the RFP to oversee and control bank accounts globally in response to legislation such as the US Foreign Corrupt Practices Act (FCPA), Sarbanes-Oxley (SOX), and other audit requirements. Treasuries also use RFPs to reduce the costs of banking services by leveraging scale of enterprise as well as changing different services purchased. Of course, lower cost and better service are often the twin drivers for initiators for starting the RFP process.

Situations When RFPs are Used

Among the key services that corporate treasuries use RFP processes for is to achieve greater efficiency of their cash management. The RFP process is used to enhance reporting and control complex payment implementations. Thus, the decision to use the RFP process in cash management is influenced by the following factors:

• Mergers and acquisitions (M&As): Incorporating a new business, which may be in new geographical areas, often involves changes in corporate treasury’s banking requirements.
• Synchronising operations for newly-merged companies: This is also likely to require changes corporate treasury’s banking requirements.
• Expiration of agreements: Bank may need to renegotiate existing bank agreements, providing opportunity to improve liquidity management and reduce pricing.
• Automating internal processes: The RFP process is used to implement new services which involve moving from payment web portal to straight-through processing (STP).
• Changing risk strategy: The RFP process involves implementing risk management strategies, because of the need for banks to be stable.

A key result from a successful RFPs process is improved efficiency in bank receipts and disbursement processing. Another benefit is the simplification of banking architecture to enhance the transparency of the cash pool and its movements. The RfP process also offers a more efficient cash management process through a reduced cash collect float. Moreover, the RFP process offers efficient and effective access to information, as well as enhancing the use and sharing of information.

Different Phases of RFPs

The four phases of an RFP in corporate treasury are as follows:

Figure 1: Four Phases of the RFP Process

Source: PwC Germany

Preparation phase: The preparation phase is key to any successful RP process and implementation. One has to determine the goals and basic conditions under which the selection process is done. This involves identifying the business requirements, gathering information to decide which bank to invite and preparing a detailed plan. It is also important to name the project team and steering committee members to be included in the evaluation and implementation process. The following items should be clear from the outset:

• Defining the project plan and its objectives.
• Assembling the project team.
• Developing the business requirements.
• Obtaining relevant use of data and transaction.
• Developing account and systems architecture.
• Performing a vendor scan.
• Creating a vendor list.
• Determining the RFP format.
• Developing the RFP questions.
• RFP administration and issuance.
• Proposal scoring and review.

Tender phase: This is when the company holds an introductory meeting with the management of the selected banks, which will have the opportunity to hold Q&A sessions with the company to assist them in analysing the proposals.

Contract phase: The company now focuses on one or two banking partners and negotiates pricing with the selected banks. At this stage, lawyers are offered the opportunity to draft the legal agreements as well as drafting contract negotiations.

Implementation phase: Data exchange is implemented and bank accounts are opened. This is the stage to enhance the connectivity process for enterprise resource planning (ERP), treasury management systems (TMS), payment factories and cash management systems. The implementation plan should also include:

• Timeframe.
• Key deliverables.
• Skill and staffing requirements from both sides: corporate and banking partner.
• Key projects dependencies and tasks.

Certain issues are compulsory for each of the different phases. First, the company should follow the bank selection criteria. These should depend on an evaluation of the bank’s capabilities since each will have different capabilities and weakness. Second, there is the need to analyse and check the bank’s references before selecting those for the RFP process. Third and most importantly, it is vital to match the final service agreement with the accepted RFP. The costs and estimates of the proposal should be well understood, as should the method of their calculation.

Do’s and Don’ts Within a RFP process

Do’s:
Among the do’s is mapping out a realistic schedule for the RFP process to achieve proposal requirements. A company should choose the best banks in the bidding process to enhance efficiency of the process, and the bank’s location should not be one of the deciding factors.
Moreover, the company should review the proposal service-by-service rather than bank-by-bank. More importantly, it should probe any negative reference associated with the bank’s products and services. It is also vital that one senior team member reviews all part of the proposal to ensure that the RFP process satisfies the project objectives, while management should visit the real-time site critical for the TMS to ensure that implementation of the proposal is being run as planned.

Don’ts:
A company should not embark on RFP project without special reason, nor without aiming for specified project benefits. Moreover, the support of senior management is essential before an RFP is issued. It is important not to omit any information issued to the bidders that may affect the quality of the RFP process. Do not let the control of the RFP project leave the treasury, as many companies will also have procurement/purchasing departments. A company should also not accept references that do not match the industry in which it operates.

Strategic Aspects of the RFP Selection Process

There are other strategic factors to be included in the decision process, such as wallet sizing, bank relationship management and a mutually beneficial bank relationship. Treasury should also estimate what relationship priority the company will gain from the bank selected, which includes cash management and investment banking. Typically, the bank’s estimated share of the corporate wallet is considered in the RFP process.

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