How integrated with their suppliers and banks should the corporate treasury department be? Suppliers and banks love ‘sticky’ services that integrate into their operations with their corporate client’s operations. So the client is tied to the them for a long time, if not for ever. In addition, banks and suppliers are often trying to carryout more of their clients work to ‘free them up’ for the more value added processes and activities. For the corporate treasurer this has advantages:
- it is much more cost-effective operations and work flows
- it does free up time for more ‘value add’ work.
But over-dependence also brings problems:
- what happens if the quality of service falls and the corporate treasury department want to change?
- what happens if the supplier/bank gets out this type of business, or they don’t want them as customers anymore, as suppliers and banks have done in the past?
- the operational and counter-party risk can escalate dramatically to the point when the biggest risk in the corporate treasury department could be the TMS provider, or a particular bank, or the service provider of the remove servers that the corporate treasury department uses.
What to do about over-dependence
Although corporate treasury department cannot be fully independent, there are strategies and methodologies which can be used to minimise the downsides, the problems from over-dependence on any single supplier or bank which include:
- manage and look after your relationships, see: ESB’s approach, and how Dubai Aluminium ‘tells them how they are doing’
- avoid having just one supplier/bank, and, wherever possible, have an alternative, and let them know there is an alternative, i.e. keep them honest
- split banks into Tier 1 banks (who are committed and provide funding) and Tier 2 banks who provide regional and other services/relationships
- try and not mix your bank credit and transaction services business, so you change one without changing the other
- if you have to have just one supplier/bank then, at least, have a researched exit strategy for getting out of the relationship
- use the new message standards, such as ISO 2022, don’t sign up for any services based on proprietary standards AND insist that your bank or supplier uses them or you’ll leave, e.g. as Johson Controls - see - did when rolling out their SWIFTNet project
- use the business middleware packages, e.g. from The B2Group, Volante Technologies, to insulate the corporate treasury department from changes in the old and new message standards.
CTMfile take: No corporate treasury can be totally independent, so corporate treasury need, as Greg Croydon, Director, Treasury and Group Pensions at IMI the UK, put it in his talk at the ACT Cash Management Conference, we need to “regard (the key) banks as partners / stakeholders who provide investment for the balance sheet and growth, and also provide valuable services.” This equally applies to key suppliers as well.
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