A CFO might not know the exact answers to the following questions, but someone in finance, ideally a treasurer or someone within treasury, should:
- How much does it cost to run our banking operations globally?
- How many bank accounts do we have?
- How much do we spend on checks vs. electronic payments?
- What is our effective yield on balances held in demand deposit accounts?
- Is the organization paying for banking services it doesn’t use?
Large companies spend hundreds of thousands on bank fees annually, but rarely is anyone consistently going over bank statements, whether paper or electronic, to find unnecessary fees, services, accounts, and other potential savings areas.
"I believe it's our fiduciary responsibility to manage our bank fees."
Marguerite Versacci
Assistant treasurer, Tronox
While some CFOs may be reluctant to hand treasury teams a project on bank fee analysis, the savings are worth it, said a panel of treasurers at the Treasury Management Association of New York’s New York Cash Exchange Conference on Tuesday.
“Bank fee data is an untapped resource full of opportunity for greater visibility into your finance organization; it’s also necessary but ignored,” said Bridget Meyer, a senior director at Redbridge Debt & Treasury.
Said Marguerite Versacci, assistant treasurer at minerals and chemical mining company Tronox, who manages six banks and 120 accounts and has operations across 17 countries: “I believe it's our fiduciary responsibility to manage our bank fees. … I would not pay a bill at home without getting an invoice or a statement. So why would I allow a bank to auto-debit me without an invoice or statement?”
Stepping into Tronox 11 years after the company exited bankruptcy, Versacci said she “started to dive in just trying to get a handle on my bank accounts.”
Bank fee analysis is a time-consuming task, but in addition to eventually saving tens of thousands of dollars on fees, Versacci said, knowing the numbers makes her feel empowered when talking with the budgeting or FP&A teams internally and with her bankers. “I feel justified when asking for services or cost reductions,” she said.
A Data Goldmine
Frank D’Amadeo, director of treasury operations at utility Con Edison, which pays up to $1 million a year in bank fees, said software for bank fee analysis can make the process less painful and pay for itself multiple times over in the first year. Con Edison uses a tool from Fiserv.
Not only does software help identify fees being incurred or new services added that were never negotiated, but a full analysis gives the company a database of information that it can use for a request for proposal (RFP) or request for information (RFI) if it contemplates switching banks, said D’Amadeo.
Regardless of whether a company uses such software, bank fee analysis starts with the data. “You’re sitting on a goldmine of every transaction your financial organization does, across the globe,” said Meyer, speaking of bank statements.
But, said Meyer, the treasury department needs to enroll in electronic bank reporting so that it’s not wading through hundreds of PDF statements.
“The starting point is to get the data electronically,” said D’Amadeo, whose own bank fee analysis found redundant charges that a bank had applied for years.
The data also needs to be classified — by type of service or product, for example, so treasurers or CFOs will have to deal with Association for Finance Professionals (AFP) service codes — industry-standard codes found on bank billing and account analysis statements worldwide. But code assignments aren’t as consistent across banks as they should be, so mapping an individual statement can be a headache.
But there are potential quick wins. When Versacci started evaluating bank charges by looking at PDFs, she found charges for payment reversals and file corrections for hundreds of dollars monthly. When she called the bank, it told her the accounts payable department kept sending information that required corrections. “I saved hundreds of dollars every month with that one phone call,” Versacci said.
Analyzing the data can also identify fees caused by exceptions, punitive charges, and manual services, like phone calls to customer service.
Getting rid of some fees requires internal communication. For every billed service line on a bank statement, treasury will want to know what it is, what it’s for, as well as who’s using it within the organization. “Is this AP or AR or treasury? Is it someone overseas? And why are they using it?” said Meyer.
Benchmark Fees
Once an analysis is done, the company can benchmark fees and see if its banks are competitive on price. Costs for services can vary widely — a per-check fee, for example, could range from $0.91 to $3.70 depending on the bank, according to data provided by the panelists.
There are data service providers that can benchmark bank fees. “It’ll give you some insight into whether you want to go for an RFP or RFI and go for cheaper rates at another institution,” said D’Amadeo. Keep in mind, however, “the cost of uncoupling and reconnecting to another bank — it can take a year to do that,” he said.
"You may have a very short window to notify your bank that you encountered discrepancies."
Frank D'Amadeo
Director of treasury operations, Con Edison
The goal of bank fee analysis is not necessarily to “negotiate [the] bank down and squeeze them as much as possible,” said Meyer, but to figure out things like which bank should get a larger share of wallet or which institution to give new business to. The idea is also to catch errors, of course, like negotiated pricing a bank isn’t honoring. Internally, it can help senior finance people determine how to better allocate costs across business units, Meyer said.
The panelists did provide one caveat to CFOs and treasurers: As more organizations analyze bank fees with software tools, some financial institutions are revising contract language so that the grace period for reporting an error in a bank statement is shorter.
While in the past bank customers perhaps could go back multiple years and ask for corrections of any dollar amount, now there may be a ceiling on the amount, and “you may have a very short window to notify your bank that you encountered discrepancies,” said D’Amadeo.
