Managing your banking relationships
It may be a good time to review your current banking relationships. Do you know what your association is really worth to your bankers? Annual treasury fees, loan-related interest expense and loan fees can add up to tens of thousands of dollars a year. Given what you are paying your banker, are you receiving a fair and reasonable return through pricing, service level quality, and borrowing flexibility? What portion of the fees you are paying drive the relationship?
Perhaps it is a good time to evaluate and assess each fee in relation to the product and services received. Simply stated, what gets measured gets managed. Banking fees are negotiable; your knowledge is power. The 2009-10 Phoenix Hecht Blue Book of Banking Prices survey found that 41 percent of banking clients receive a discount and the average discount is 37 percent. Do you know if your organization is in this population? Do you know how your pricing and service levels compare to others in your sector?
You cannot merely expect your bank to hand you discounts or favorable pricing. You must ask for them. Once received, it is your responsibility to ensure that you retain the discount over time. Regularly review your accounts and related volumes. Force yourself to become intimately familiar with your account analysis statements. Monitor accounts, services and pricing for compliance and errors; banks do make mistakes too.
Your banker can be your friend. Take time to examine together your accounts and services. Your banker should be able to identify services that you no longer need or services that you should have. Remember that when your banker suggests an enhanced service solution or platform, ask about the cost structure as well as what services can be eliminated as a result of the upgrade. A strong banking partner should be offering at least annual and perhaps quarterly reviews if you have significant services and volumes. The banker should provide strategic suggestions for your borrowing and treasury needs at each review. If it has been some time since you have heard from your banker, or if you only hear from the bank when you have violated a borrowing covenant or have a transaction error, perhaps they are not as strong a partner as you deserve, given the fees you are paying.
Keep in mind that as your organization grows and your transaction volumes increase, you will have the opportunity to ask for lower unit pricing. As reflected in the following examples, taking your business to market via a request for proposal may also generate savings for your organization. Two recent examples:
• National Association of Home Builders went to market with a full RFP, interviewed seven banking institutions, and selected a new bank with a 41 percent savings on its treasury management services. Service improvements and an enhanced on line banking platform were additional benefits gained through the process.
• Military Officers Association of America went to market and chose to stay with its incumbent bank with a 50 percent savings on its treasury management services. MOAA also benefited from receiving more focused attention from their financial partner.
In summary
• Know your spend and services; regularly review your analysis statements.
• Annually ask your banker to review the statement with you and explain the purpose and pricing of each line item; use your banker’s know- ledge and expertise to assist your organization.
• You will not obtain a discount without asking for it.
• Do not add new services without understand- ing the costs, the benefits, and which of your current services can be eliminated or reduced.
Details: Phil Gross is managing director and Rob Katzman is Bank Service Practice chairman of Expense Reduction Analysts. Contact them at pgross@expensereduction.com or rkatzman @expensereduction.com.
