Consolidating bank relationships and accounts is always good practice. But as interest rates have shifted upwards and the macroeconomic outlook has become less certain, many companies are looking for fixes to increase visibility and control, cut operating costs and try to find potentially higher investment returns on surplus funds. Rationalizing bank account structures does all this – and more.
What’s the Main Issue?
Many mid-sized firms have grown rapidly, either through acquisition or organically. As a result, they often have dozens of bank relationships and accounts around the world.
Managing multiple bank accounts and relationships is complex, time-consuming and can be costly. Each bank has their own online banking tools with different functionality; treasury staff need to be trained on multiple systems and monitor liquidity across several banks and accounts every day. What’s more, each account, even if dormant, may incur a fee.
Three Steps to Optimization
Changing economic and market conditions mean it is the perfect time for companies to take stock of their bank arrangements with a view to improving efficiency, control and visibility. Normally companies address their banking structures in a series of phases (although it is also possible to take a ‘big bang’ approach).
Work through your account list to identify and eliminate duplicate accounts for the same entity or other accounts that are no longer required, such as those that were set up for a specific transaction or client relationship. Your bank can help you understand specific account functions — a seemingly superfluous account may be necessary to access local clearing for payroll, for example.
Consolidating all activity to a primary bank can maximize visibility and control. It can also improve risk management by centralizing information about who has access and accountability for each account and make reporting more straightforward.
But you need to consider all aspects of a bank relationship. Maintaining some additional bank relationships can provide access to multiple sources of credit. Equally, not all banks are in all markets, so it’s important to think about product range and footprint when making decisions.
Once you have gained visibility of funds — either by reducing the number of portals you use or consolidating activity (including third-party banks) to a single screen — you can make better use of liquidity. You may be able to offset debits and credits between different entities or jurisdictions within the organization (avoiding overdraft costs) and fund them more efficiently.
“You can put automated sweeps in place on a regional or global basis using zero balance account structures (typically after companies have sought independent tax advice). Sweeps can take place either at end-of-day or intraday, depending on the company’s liquidity needs, and can include third-party banks. They can even convert funds to a company’s functional currency using notional FX currency conversion, lowering costs.
After credits and debits are offset, any surplus liquidity could also be invested centrally in money market funds – which now offer significantly higher rates than a year ago – to maximize returns, or to offset bank fees through earnings credits.
Choosing the Right Bank
Citi has a global network covering nearly 100 countries and direct membership of around 400 clearing systems. This coverage helps you to potentially gain access to later cutoff times, a wider range of payment types, and achieve new efficiencies. Some banks that may depend on correspondent banking relationships to provide such coverage may find it hard to offer this with the same efficiencies. Citi can provide access to liquidity on a country, regional and global basis, and its product range and advanced technology offer opportunities for further efficiencies and savings, by improving FX management for example.
