Best Practices in Treasury Management

There are several ways to turn corporate treasury operations into top performing divisions. In general, treasury best practices are strategies and tactics used by companies that have the most efficient and effective departments. Industry best practices are often determined by outside research, benchmarking and corporate experience. “In order to determine if a particular practice is best for your business, first weigh the costs and benefits, consider your company’s unique circumstances, then consider the factors that drive your industry,” said Michael A. Gallanis, principal at Treasury Strategies, a consulting firm headquartered in Chicago. For instance, lockbox concerns at a health care company are often different from the concerns at a retail company.

Gallanis presented these best practices at AFP’s 25th Annual Conference, along with Joseph D. Tinucci, assistant director of asset management at the University of Colorado. Many of the ideas presented were supported by recent findings from “Treasury Strategies 2004 Corporate Treasury Survey.”

Banking Structures

In order to create the best banking structures, be sure to choose the optimal number of providers for your specific business. For instance, large clothing retail companies generally have a greater number of bank relationships than small business-tobusiness software companies.

Benchmark the number of banks you work with against the number of banks used by your competitors. The same rule applies to the number of accounts, Tinucci said. A large retailer, like Target, may find that it must maintain hundreds or thousands of accounts. However, a regional manufacturer may require only a handful. Also, banks must provide effective services, relevant technology and competitive pricing, Tinucci said.

Bank fees are a never-ending source for negotiation. “If you think you’re being charged too much, talk to your banker and don’t be afraid to shop around,” he added. He encouraged treasury professionals to speak with colleagues in related fields to see how fees compare across a specific industry.

In addition, organizations like AFP offer the latest bank pricing data, to help treasurers and cash managers benchmark their fees and make comparisons to competitive market information.

Bank Relationship Management

A good balance of credit and cash management services is the primary objective of any successful bank relationship, Tinucci and Gallanis said. Communication is a key part of making a bank relationship work. For instance, if you need to change the address on several accounts, be sure to allow your banker enough time to process the information. “Don’t call them at 5 p.m. on a Friday and expect the change to be made by Monday morning,” said Mark J. Krawcyzk, assistant treasurer at the University of Michigan, at AFP’s Annual Conference. Effective communications should help build processes for monitoring the quality of service and banking fees.

In order to get the best value in banking relationships, be sure to re-bid your accounts and service needs periodically. The RFP process is key to finding the best, most cost-effective vendor. However, do not rebid your services unless you are prepared to actually move your business, Krawcyzk warned. Most bankers will want to respond to these requests in the hopes of winning the business. As a result, treasurers who send frequent RFPs to the same vendors every year may actually damage existing relationships (and the potential for new banking relationships) if they do not move their existing business.

Savvy Collection and Concentration

Most top performing treasury divisions have a high percentage of electronic versus paper payments. In fact, many successful multi-national companies that primarily conduct business in Europe have moved towards using a majority of electronic payments.

Tinucci suggested that treasurers should use lockboxes and new technologies, such as check imaging, to accelerate cash collection. If technology solutions are too expensive, try to ensure that payments are processed automatically using daily consolidation of funds to one or a few accounts (with minimal manual intervention). Finally, Gallanis said that a high percentage of check conversion-including RCK, POP, ARC, WEB and TEL- will improve most collection and concentration processes. In addition, several top treasury services banks began offering check imaging pilot programs this year.

Finally, controlled disbursement accounts with full reconciliation services are considered a best practice. Most businesses now use positive pay services, such as traditional, payee match, imaging. The best disbursement practices include no manually generated checks. However, most businesses occasionally require a manual check, Gallanis said.

Copyright 2005 by the Association for Financial Professionals (AFP). Reproduction of this material is prohibited without prior permission by AFP. All rights reserved in all countries.