Effective bank relationship management is based on four pillars:
Communication
The foundation of collaboration is effective communication, specifically: aligning on expectations. From the company’s perspective, this means communicating their current and future needs in terms of credit and treasury services, and sharing what defines success for them in each area of engagement. From the bank’s perspective, being transparent where they can offer the most value, pricing transparency, and how they define the value of the relationship in terms of their return on investment to having the company as a client.
Communication in bank relationship management also involves digital communication from banks relative to treasury services. From a cash management perspective, this information can include bank account balances, bank account activity, and specific reports related to bank account activity based on an array of variables (sources of payments and/or receipts, currency, groupings of bank accounts).
In today’s world, companies should expect current day or even close to real time reporting of bank account activity from bank accounts in most countries across the globe due to the proliferation of Application Programming Interfaces (APIs). APIs can empower treasury teams to automatically send and receive payments, reconcile bank statements, and generate reports on transactions in real-time.
The timing and type of information available to a treasury team has a significant impact on the effectiveness of cash management. Digital communication is critical as cash management means optimizing the control of the types and timings of payments and receipts based on data-driven decision making.
Collaboration
Valuable collaboration in bank relationship management means that banks understand the current and future needs of clients and do not try to aggressively upsell treasury and credit arrangements.
All banks have areas in which they excel relative to other banks, and pushing services in which they do not offer value relative to company’s need can ruin any relationship. Companies need to understand what it means to be a valued customer to a bank and invest in doing what it takes to be “a good customer”.
Collaboration means that banks are transparent in their expectations and pricing, share why the relationship matters to them, and deliver the level of customer service the company needs to realize value in each area of treasury services and credit. Collaboration with banks by companies means that they communicate what services they need and why they need them, how they measure bank relationship success, and where they might need treasury services in the future based on company strategy.
Performance Management
Bank scorecards are an important tool that many companies leverage to assess the performance of their bank partners relative to their expectations. The use of bank scorecards has declined in recent years as many companies have not realized the value of leveraging them or continuing to use them. There are three broad sets of reasons why a company may not find value in leveraging bank scorecards:
- Scorecards can be cumbersome, in terms of the time it takes to get the data to populate them, let alone analyze them and leverage the analysis to improve or terminate relationships that do not offer value.
- Companies do not share with bank partners how their performance is being measured, let alone allow them to offer suggestions relative to how to assess their performance. Bank scorecards that are “right-sized” relative to the right information, leverage data and reports that can be automated, and are shared with bank partners offer companies a great tool in managing relationships.
- Banks also could do well to leverage a scorecard that assesses the performance of a company in terms of being a valued customer. A client scorecard would help banks identify and communicate areas to clients in which they could collaborate with them to meet their expectations.
Client scorecards that are “right-sized” relative to the right information, leverage data and reports that can be automated, and are shared with clients can offer banks a great tool in managing client relationships.
Value
A company needs to measure and manage the value of each bank relationship. In terms of treasury services, the assessment of the value of the relationship should have dimensions beyond pricing.
If a bank is in a credit relationship with a company, then the company puts value in the credit dimension of the relationship. This means that a company may engage in services that get the job done, but do not see the lowest pricing relative to the same services offered by another bank.
Pricing is certainly a key component in measuring the value of treasury services and credit arrangements. In terms of cash management, companies need to have the tools to benchmark and manage the pricing of treasury services. Banks issue bank analysis statements that summarize the charges that a company incurs over a fixed time period, usually a calendar month.
It would be ideal if a treasury professional could easily understand, categorize services, record data relative to services and compare the pricing of the services they consume offered by other banks. Unfortunately, bank analysis statements seem as if they are encrypted, and that makes understanding, benchmarking, and managing treasury services fees difficult at best.
Banks should share how they assess the value of a client relationship. They often measure how they value a relationship with a company relative to the bank’s Risk-Adjusted Return on Capital (RAROC) for a company. An in-depth explanation of RAROC is beyond the scope of this blog, but the formula to measure RAROC is as follows:
RAROC= Revenues – Operating Costs – Liquidity Costs – Expected Loss Economic Capital
Companies should ask bank partners how they value their relationship relative to RAROC and get as much detail as possible to ensure that the bank is using the right data in calculating.
An understanding by each party in a bank relationship how the other party values their relationship allows each to make data-driven decisions related to the nature and depth of that relationship.
Cash management done right means making data-driven decisions about the types and timings of all cash movements, and doing so in a cost-effective and secure manner. Banks impact the timing and types of data received, the executions of cash movements, the reporting of bank activity, and the relative security of cash flows.
Communication and transparency in a bank relationship facilitate collaboration which means that the relationship is trusted and valued by the bank and the client. The right bank relationships can empower the career success of a treasury professional while the wrong ones can derail a career.
