- Tracking fees
- Asking for an invoice
- Automating the process
- Using historical data to identify discrepancies
- Maintaining an active rate table
- Monitoring disputes
- Understanding every service line item
- Tracking deposit insurance charges
Bank Fee Analysis: How to Trim the Cost of Bank Services
Bank fee analysis is, at once, one of the most mundane tasks in treasury and one of the most sought after. As one of the only areas that directly manages and attributes tangible departmental costs, it is one of the more critical tasks performed in the treasury department.
Done correctly, bank fee analysis can save your company tens of thousands – or even millions – of dollars off the annual cost of bank services, making you a treasury hero. Fail to perform the task, and you will most certainly be paying more than you should for bank services you don’t need.
“This is a true opportunity for someone in treasury to shine,” said Bridget Meyer, managing partner at The Montauk Group, a bank fee analysis consultancy.
There’s no question that the process is worthwhile, according to Treasury Analyst Darrilyn Lawrence of the Lincoln Financial Group, an insurer. “Significant cost savings are achieved yearly by recognizing price errors, closing accounts and discontinuing unwanted services or services no longer relevant to the account structure,” she said.
One way to gauge the potential ROI of automated bank fee analysis is to sit down and describe the cash cycle of the company, according to Dan Gill, senior vice president at Weiland Corporate Solutions. “If you do that, you can come pretty close to estimating what your bank fees should be,” he said.
“The biggest pain point, at the highest level, comes down to one of priorities,” said Gill. “The one truth about bank fees is that you can always just pay the invoice without looking at it, and as treasury organizations have to do more with less, something like bank fee analysis can easily slip through the cracks. As a result, it is easy to get overcharged.”
Other recommended action steps include:
Diligently track fees
“We’re always real hard focused on bank fees,” Lawrence said. “We’re very diligent about balancing back to our contracts. That’s especially important when new banks are ‘on boarded’ or new services added. The key is to be very diligent to make sure you’re getting charged the correct fees from the start.”
According to Kathy Reedy, manager of finance at HR services firm Insperity, one of her company’s banks started charging them for a service the bank hadn’t charged them for in five years – which was immediately noticeable.
Reedy now handles all bank fee analysis manually, with the help of a treasury analyst. She said the information is also useful when banks try to raise prices as it gives them the data to be more effective in their negotiations.
Ask for an invoice
According to Meyer, the big difference with banks is that there’s no approval process; it’s typical for them to automatically deduct fees from your account. When you do find issues, it can take months to get your account credited.
To avoid this issue, create an invoice relationship. Research shows that approximately 64 percent of companies prefer an invoice relationship to auto-deduction. “They will get a fee invoice that they need to approve and pay via ACH,” said Meyer. If you do ask for an invoice, be sure that payment terms are clearly stated to satisfy the bank’s concerns if payment is not made within a set timeframe.
Automate the process
Tracking fees can be an especially daunting challenge for large companies with complex banking relationships. A statement may contain 200 or more line items. Companies may pay anywhere from $10,000 to over $100,000 a month, depending on the number of banks and services they use.
The best practice is automated data processing and management. “You have to get EDI 822 files instead of PDFs,” said John Snyder, vice president of business development at Chesapeake System Solutions. Once the data is held in a repository database, companies can analyze it and compare month-to-month costs from one bank to another.
“It becomes a business intelligence problem: you got the data, now how do you want to mine it,” Snyder said.
Northwestern Mutual’s process is quite complex, according to Christine Nault, Northwestern Mutual treasury compliance specialist. To process its incoming 822 files, which the majority of the company’s banks provide, they rely on The Weiland Financial Group.
However, 822s are only provided for treasury services, and banks with domestic custody services require manual input. Because of this, Northwestern Mutual also employs a global custodian whose fees are managed outside of Weiland because of the inability to obtain an 822 file and the fees are asset-based and aren’t as easily tracked in the system.
Northwest Mutual identifies volume and pricing issues as well as new services, which allows the company to examine invoices for accuracy. Northwestern Mutual retains two years of historical data plus the current year’s data, but typically analyzes trends within a shorter timeframe, specifically looking for anomalies in fees, pricing and volume.
For example, the company reviews volumes of services to ensure they are reasonable with other sources within the company. “We also review if we received an overdraft charge to ensure it was not due to bank error,” Nault said.
Use historical data to identify discrepancies
The focus here is typically on larger issues, particularly for companies with good banking relationships. When material anomalies are identified, companies like Insperity contact their banks to find out what’s behind it. They also have a process in place that fee status and any open items are reported monthly to the vice president of finance.
Once companies download the EDI 822s, which are the electronic version of the bank statements, most create their own reports, allowing them to drill down by bank account and product level, and to set up different levels of reporting.
By comparing volume and pricing against prior months data, companies are able to identify any discrepancies, such as rejects from a lock box, or an increase in wire transactions. Whenever the treasury manager notices a change that cannot be operationally explained — for example a higher volume of wire payments at the end of a fiscal quarter — it’s time to track it down.
Maintain an active rate table
The key to analyzing bank fees is a well-maintained bank rate table. Companies that automate their analysis review via technology have systems that maintain a rate table that can be updated on the fly.
“The bank rate tables along with the report modules are only good if you utilize and maintain them,” Lawrence stressed. “That means updating consistently if there are any changes or new accounts or services added. We’re very diligent in keeping the bank rate table current so we have an accurate reporting system.”
Track all disputes
While bank fee analysis systems have the capacity to track discrepancies, most companies have continued to manage that process outside the system. However, that practice is changing.
Take Insperity, for example. The company actively administers a report card for its banking partners, which provides semi-annual reports of their performance based on various system metrics. “For instance, we expect our banks to inform us of any pricing changes at least 30 days in advance,” Nault said.
Insperity also grades its banks on the timeliness of statements or receipt of 822s, and resolution of pricing issues. “If they do not meet our expectations, this is documented in the bank report card to ensure that those issues are addressed when we meet with them,” she said.
Understand each service line item
The vast majority of practitioners who manage bank fees could not define some of the codes for services, which is how companies are “often double- and triple-charged for the same service,” said Meyer. She said you first need to understand what every service line item is, then decide whether to keep it.
Track deposit insurance charges
One increasingly important ratio is what banks are charging companies in deposit insurance charges (FDIC or Federal Deposit Insurance Corporation fees in the US). “It’s essential to track FDIC fees to make sure we’re assessed the correct amounts,” Lawrence said. The added basis points “put a huge hit on our budget the first year. We’ve spent over $100,000 that we didn’t project to pay.”
The new fees have sparked a review effort to gauge the cost and benefit differential between investing excess cash in money market funds and paying the fees, which are reported as an interest expense.
About the Author
Nilly Essaides is Director of Practitioner Content Development at the Association for Financial Professionals (AFP), a US-headquartered professional society that represents finance executives globally. This article was first published in the April 2014 issue of AFP Exchange Magazine and was re-edited for clarity and conciseness.
Copyright © 2014 Association for Finance Professionals. All rights reserved.
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