This is the second article in a series on leading practices in corporate treasury.

BRM feeds into bank account management (BAM). Banks need corporate treasurers as much as corporate treasurers need banks. This is a dictum that hasn’t changed. They can best fulfill each other’s changing needs and create a healthy long-term relationship by serving as strategic partners or allies. So how can corporates and banks come together as strategic allies?

• Access to capital and ideas: 50% of companies believe that their banking partners can better serve them in the future by providing more favorable credit terms and access to capital, according to Strategic Treasurer’s 2020 Treasury Perspectives Survey (this survey was underwritten by TD Bank).

 

 

One of the most important considerations that the corporate treasurer should keep in mind when exploring or assessing possible banking partners is the corporation’s ability to access adequate cash and working capital for their business operations and varied requirements.

Corporate treasurers are responsible for the liquidity of the company and should select a banking partner who can scale up or down based on the company’s needs. In essence, focus on those banks who provide the most capital and a nice balance of services and credit, including better pricing on services and information on what their peers are doing. 

Treasurers also need to consider the bank’s ability to help drive them toward best-in-class cash and risk management processes.

Almost no one wants to come into work to do manual data entry anymore. Forward-looking treasury departments should look for ways to increase straight-through processing so they can focus on th­­­­­e more strategic things that are coming down from the CFO or the CEO. That could be automation through a treasury management system and automation for analytical purposes, bank fee optimization or to attain greater operational efficiency and a reduction in errors.

• Advisory services: Banks have access to a multitude of clients and extensive industry information that leads into advisory services on operational, business and strategic matters. While any prominent bank can provide data and services, the suitable bank partner will help you extract or glean actionable outcomes from this information, be it treasury-specific or industry-specific. They can provide counsel for debt, credit, service offerings, foreign currency, and risk management, or even bring to the table innovative ways to access debt and equity capital markets.

The right banking ally will be at the forefront to make things easier for the treasurer. For example, if a corporate were going into new markets in the Asia-Pacific region, they might go to a regional banking expert for advice: What to expect in each of the countries? What needs to be done for putting in working capital credit lines and opening bank accounts? Is there assistance in opening up new businesses from scratch or getting government approval for foreign exchange accounts? The corporate could lean on their banking partner for a smooth business transition in those countries. In those areas, they become more of an extension of the corporate treasury department, not necessarily internal, but an external partnership that is harnessed by the bank’s skills, expertise and experience.

• Communications: One of the most important aspects of the relationship between a company’s treasurer and its bank is open, clear, honest, willing and frequent communications with the goal of supporting business continuity, growth and profitability.

Two-way updates create a mutually beneficial environment. It helps if corporates share information on business activity or strategy changes with its banking partners. This enables the bank to better understand the corporation’s strategy, allowing them to customize their product and service offerings around what capital needs are to be met, understand what types of deals can be offered if a company expands into another country, support with hedging and access to capital markets, or even act as an advisor from that standpoint.

The reverse is also true. The bank relationship managers should keep their treasury colleagues up to speed on any suitable developments at the bank or in their industry, thereby becoming a valuable information provider.

It is vital that the senior leaders in a corporation meet the upper echelons of their banking partner, either biannually or annually. Some of the larger organizations set up banker meetings where they bring in their bankers for a day or two and have some social events associated with such a rendezvous. The company disseminates relevant information about the business and its plans, and there’s time to ask questions, build rapport, and make multiple connections that matter. The objective is to strengthen the business relationship with their banking partner through dialogue and interaction.

• Formalized call reports: “Only 12% of companies document the meetings they have with banks in a formal call report that is available to core treasury,” noted Craig Jeffery, managing partner at Strategic Treasurer, a leading treasury consulting firm. ⃰

Sixty-five percent of companies document their calls but don’t have a detailed structure or format to do so, according to Strategic Treasurer’s 2020 Treasury Perspectives Survey.

Every time treasurers meet with a bank or a banking partner, every call, every meeting (especially the more intensive meetings to discuss the plans of the company), the treasurer must complete the formalized and structured call report, processed and kept track of, so they know what’s on the horizon or what can be expected of the banking relationship.

This could be new banking services as a possibility, debt deals, foreign exchange services, or relevant information that pertains to receiving credit down the road. The call report is ongoing and looked at to know what’s in queue for the future.

• Scorecard and share of wallet: According to Strategic Treasurer’s 2020 Treasury Perspectives Survey, only 29% of companies use bank scorecards to rate their banks based on their relationships with them.

A scorecard enables a company to measure the bank’s performance and is an efficient way to provide feedback from a corporate’s perspective.

Treasurers are advised to establish a bank relationship scorecard to make an accurate assessment of each bank and objectively communicate to them their positives and negatives for improvements and follow-ups. This will help companies determine how prompt the banking partner is in responding to their inquiries or requests on matters pertaining to customer service, quality of calls (ideas and support rendered), price vs. value, commitment to longevity and quality of relationship, products, cash management and more.

Large corporations will usually provide a scorecard to their top tier bank relationships on a semi-annual or annual basis.

To proactively manage the banking relationships, the share of wallet calculation is also recommended. Treasury consulting firms may perform a share of wallet exercise for clients, categorizing all elements of each major bank relationship and ranking the share of spend that each bank enjoys. This is further calibrated by anticipated profit margin and risk-adjusted return on capital (RAROC) with the expectation that this will provide a view of the relationship similar to the view the bank has of them, with the added benefit of seeing their entire spend. This allows for some rebalancing to ensure the most important bank relationships to the corporate stay important to the banks as well.

Most treasurers lean toward the informal side of the spectrum of relationship management, categorizing their relationships in tiers. It is a good idea to formalize the approach to ensure more effective and lasting banking partnerships. Treasury should also review their bank relationships regularly to ensure that their financial needs are being met.

These are challenging times for treasurers, and in order to effectively act as the financial cerebral cortex for the organization, they must also be connected to the organization’s financial nerve center. Only with these two collaborating activities can treasury offer unprecedented strategic value as they optimize their banking structure.

 

⃰ Disclosure: Strategic Treasurer owns CTMfile.

 

Read more from this series:

Part 1: Bank account management (BAM)

Part 3: Cash concentration

Part 4: Liquidity structure

Part 5: Treasury owns cash