When interest rates rise, there appears to be greater demand by companies to improve their treasury and cash management processes, thereby realising greater returns on idle funds. However, even in lower interest rate environments, significant upside can be gained by:
- Improving the effectiveness and efficiency of receipts and disbursements processing.
- Simplifying bank account architectures.
- Rapidly concentrating funds.
- Improving transparency of cash pools and movements.
- Optimising the number of banking relationships within a country or, for multinationals, across a region.
A key enabler for raising the productivity of a corporate’s cash is selecting and managing the right banking provider (or vendor). Given the increasing prominence of Asia in the global economy and the pervasive cash management inefficiencies that exist within many corporations in Asia, this article highlights approaches for selecting a regional banking provider, with particular reference to Asia.
The sophistication of treasury and cash management practices does vary quite dramatically by industry and global region. In Asia, regional cash management capabilities provided by global banks have really only started to mature over the past five to eight years. Primarily, this has been to support inter-company and business-to-business (B2B) transaction requirements. Progressively, this is extending to support retail customer collections and disbursements with some creative solutions to address very low value transactions, breadth of geographic coverage, and weaknesses in telecommunications and payments infrastructures.
The diverse payment system landscape across countries in Asia is a product of market development and regulatory barriers. Designed to protect the outdated practices of local banking champions, these barriers are progressively falling – thereby permitting greater foreign-domestic collaboration resulting in greater efficiency of commercial and retail transactions.
All of the global banks – for example Bank of America, Citibank, Deutsche Bank, HSBC, Standard Chartered, and many others – can flaunt prestigious awards bestowed by various industry bodies and publications that attest to the strength of their treasury and cash management services. With their proliferation, however, these awards have become meaningless as an aid to decision-making, and should not be used by prospective clients as a proxy for proper due diligence. At the very least, the corporate must fully understand which specific region or market and functional areas that such awards apply to in order to determine if they are even relevant to the requirements of their particular business.
The Process: Company Buy-in, RFI and RFP
A company’s initiative to streamline its treasury and cash management capabilities must be preceded by internal buy-in and active support on the part of the executive team. The Asia regional office cannot simply make the decision to proceed, and mandate participation across the region. Each country operation’s participation and commitment is critical. Herein lies a key challenge – tight, historic relationships between company personnel and their counterparts at the current local banking provider (whether a domestic bank or the local operations of a regional/global provider) will be a significant source of resistance to signing up a new, regional provider. And they will likely not welcome the upheaval associated with changing processes and banking arrangements unless there are obvious benefits to be realised at the local financial and operational level.
A proven approach to developing widespread understanding and support is for the company to form an internal project team consisting of a project manager and one or more representatives from each participating country operation, which collectively possess knowledge and experience spanning accounting, treasury, receipts processing, disbursement processing, and application systems. This multi-country team will facilitate the rapid understanding of diverse approaches across the region, promote a regional rather than country/functional perspective, accelerate the collection of transactional data (needed for the business case and request for proposal (RFP)), and promote buy-in through visible participation of local representatives.
If they are not already in the loop, do not forget to include the chief financial officer (CFO) and treasury executives from global head office in the communications because inevitably, prospective and incumbent banking service providers will attempt to lobby for their own selection at the global level if they have access to these people.
Given the pace at which cash management service capabilities advance within each bank, we recommend issuing a request for information (RFI) to all banks that have a geographic footprint that matches your service requirements in order to understand their latest offerings. The RFI process also helps to educate internal management and project team members on the ‘art of the possible’ (recognising that some of what is presented by the banks can be vapourware – services not yet fully available across Asia), establishes relationships with the key contacts of the potential services providers, and can help to quickly eliminate those banking service providers who clearly would not meet all the requirements. However, an RFI is not a RFP – expect high level, boilerplate information and no pricing data – and remember that this process will help you to identify potential providers, not to make the final selection.
Following the RFI process, you will be better equipped to draft the RFP, containing, among other things, the key information required by the banks to submit a firm commercial and services proposal. Be sure to establish the selection criteria (and weighting) when creating the RFP to reduce the potential for drawn-out debate and unsubstantiated biases after proposals have been submitted. This approach also ensures that all the vendors provide the data that is necessary for you to apply your criteria. This sounds simple but it is surprising how often companies issue RFPs which collect mounds of data, little of which is actually used in the decision-making process.
Keep it simple when defining the selection criteria. Too often, selection teams lose sight of the actual business objective as they become immersed in thousands of minute requirements with individual weightings that produce a mathematical, yet nonsensical result. Detailed functional requirements should roll up to an overall set of five to 10 key weighted criteria.
In order to obtain realistic and comparable pricing from your vendors, you will need to collect at least one year’s worth of receipt and disbursement transaction volume and value data by payment method. You will also need to provide your existing bank account architecture, high-level process overviews, and other required data that will have been identified through the RFI discussions. With an experienced treasury and cash management expert on the project team, you can also brainstorm process redesign opportunities to be outlined in the RFP.
Your RFI process should have allowed you to narrow down the list of potential candidates to between three and five. Any more than that and the effort will become too onerous for your selection team, as well as the country finance staff. Typically, each bank will want to send members of their bid team into each of your country operations to ask questions (while establishing relationships that they hope will increase their chances of being awarded the mandate). Although data collected and presented in the RFP activities should have fulfilled all their data requirements, it is sometimes useful to allow one site visit per vendor, assigning each vendor to a different country operation to minimise disruption to any one operation, while still providing all the banks with comparable access to information.
As with most RFPs, additional information in the form of vendor presentations, and responses to your clarification questions should be in writing and be evaluated as part of the proposal. With a shortlist of two or three candidates, it can be highly insightful to conduct a ‘solution implementation workshop’ with each of them. You need to be clear to the vendor that there is no role for the sales rep at this workshop, but instead you expect the proposed implementation manager and members of the implementation team to brainstorm solution alternatives and drivers of benefits and costs with your team. This working session will give you a realistic understanding of the vendor’s capabilities, flexibility, creative problem solving skills, and ‘fit’ with your organisation.
Assuming you have structured the RFP and criteria well, and followed a disciplined selection process, the primary and alternate choices will be obvious. Be sure to retain two candidates even once contract negotiations have begun, in order to maintain negotiating leverage as well as to have a back-up should one candidate fail due diligence or prove to be an unsatisfactory choice. As you have undertaken this initiative to realise specific business benefits, and the banking vendor will hold the keys to unlocking many of those benefits, payments to the bank should be contingent upon realising such benefits, rather than simply based on the bank’s preferred approach, which is to charge a fee per service/transaction.
There are few initiatives in a corporation that are ‘no brainers’ in terms of benefits versus costs – but treasury and cash management is one of them. However, a well structured RFP and disciplined RFP process that secures internal buy-in, identifies the right banking service provider, establishes a strong negotiation position, structures a viable implementation plan, and ties fees to results is fundamental to ensuring that the potential benefits of greater interest earnings, reduced bank fees, and the elimination of some manual activities are actually realised.
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