Leading practices part 1: Bank account management (2024)

This is the first article in a series on leading practices in corporate treasury.

Treasuries are the custodians of cash in a corporation and remain so by ensuring that there is adequate cash and working capital for the business operations at all times. By actively managing liquidity, treasurers set the tone for a company’s financial direction and continue to be a significant contributor to its growth and monetary performance.

But to compete in a hypercompetitive, remote and digitized work environment and move beyond the pandemic into the next normal mandates that they adopt discerning banking structure and treasury practices to adeptly manage cash flows while supporting established accounting norms for the organization.

Here are our recommendations on how corporates can optimize banking structure to improve visibility of transaction and account balance information, enhance treasury efficiency, lower costs, minimize risk, deliver more responsive controls, and deepen their banking relationships.

Bank Account Management (BAM)

• Visibility: According to the findings of a benchmarking study conducted in the summer of 2021 by the American Productivity and Quality Center (APQC) and Ernie Humphrey, CEO of Treasury Webinars, that surveyed 246 treasury and finance professionals, only 17 percent of respondents said they have ideal visibility into accounts payable (AP) and supplier processes. Furthermore, only 15 percent of respondents said they have daily visibility into more than 90 percent of their bank accounts.

One of the key challenges for corporate treasury is the quest for daily and real-time visibility over cash, particularly for companies with multiple bank accounts across different countries and currencies.

Companies that have little or no daily and real-time visibility over all their global bank accounts, fees and banking relationships miss out on an opportunity to leverage this information for reduced costs, optimized liquidity and more streamlined internal operations. This also affects their ability to determine if their company is compliant with its own internal guidelines and if they have reduced the risk associated with its cash inflows and outflows.

“It is imperative for corporate treasurers to see or view their entire domestic and international account balances and transactional activity on a daily basis (intra-day or current). It is a standard of good corporate conduct,” said Craig Jeffery, managing partner at Strategic Treasurer, a leading treasury consulting firm.⃰

Comprehensive visibility (the whole picture of group liquidity) encompasses daily and timely visibility across the corporation’s accounts, services, signers, legal entity and bank relationship information. This includes information about when and how accounts are opened and closed, how they are set up officially, the end users of those accounts, the accountants or individuals responsible for reconciling them, the key documentation related to those accounts, signature cards, banking resolutions, and relationship between cash movements and cash consolidation. In addition to being vital from a security standpoint, this enables a company to see where they have excess cash across different regions so that they can devise ways to utilize those funds more efficiently. Also, such views into liquidity provide businesses the insights they need to minimize excess cash that is not earning investment income or establish adequate buffers to manage shortfalls.

“Treasury owns cash, which means they must record all bank cash through their system or through a process they establish. And there is an intelligent automated way of cash recording. Furthermore, owning cash helps you decide the banking relationships, determine the controls, and reduce the tedious manual processes,” added Jeffery.

Corporations should also change from time-consuming manual treasury processes into automated processes that are designed keeping future relationships in mind and are calibrated to reduce errors, save time, protect their assets and data, and allow better understanding of overall cash position and more accurate daily cash forecasting. This will also enhance collaboration among treasury, accounts receivable (AR) and AP, and related processes and activities.

• Efficiency: Optimizing operational and liquidity efficiency is an important objective for corporate treasury. It commences with rationalization of account structure or the adoption of a lean account structure that will drive operational efficiency. “Too many bank accounts obscure cash visibility,” observed Jonathan Paquette, Vice President of Solutions, U.S. at Treasury Intelligence Solutions (TIS). It also increases the costs of transferring funds to a centralized cash pool.

“You don’t want to look through multiple or different accounts, or hundreds and hundreds of accounts to get a clear picture of what your cash position is. That isn’t the most efficient way of figuring out what your cash holdings are,” commented Paquette.

A company’s bank account structure needs to be designed for operational efficiency as well. Every bank account needs to be reconciled from an operational perspective. The less it comes to reconcile, the more it leads to operational efficiency.

Another aspect of improving efficiency is understanding that, as Jeffery remarks, “Every bank account is a point of exposure. It’s a point of cost and is a part of your overall treasury structure to manage your flow of cash while supporting proper accounting for your organization.” This will help corporates to better manage their cost of capital, mitigate financial risks, and improve shareholder value.

Corporates should boost their operational effectiveness by creating a banking structure that leverages modern tools to mobilize funds, identifies discrepancies in transactions, and facilitates good determinations on cash positions and cash forecast levels. Remember there is a cost associated with it and there is also a value attached to it.

• Control: A well-designed and futuristic account structure leads to more responsive controls for corporate treasury. In fact, it’s the structure that helps a treasurer layer in appropriate controls – account level controls, transactional controls and structural controls.

Stringent controls must be in place as accounts are opened, maintained and closed, which includes access to signers (signatory tracking) and services. Additionally, bank fee analysis and FBAR compliance reporting at the accounting level enable improved control of bank accounts.

A further key control is automation of transactions to achieve straight-through processing (STP). This reduces errors and enables timely and expeditious accounting, reporting, settlement and reconciliation.

Segregation of treasury roles is another effective control mechanism. For example, front-office staff must not be able to approve payments or confirmations, and back-office staff must not be able to make a deal. Back-office employees should stick to regulatory compliance, technology, accounting, settlement and clearing.

Maximizing control is a must to protect assets and data and should be done at the account and transaction levels. Corporates must follow up-to-date policies and procedures to alleviate common treasury risks, such as those related to foreign currency, counterparty, commodity price, and interest rate risks. A zero tolerance policy must be followed for any sort of breach of controls and procedures.

• Flexibility: Liquidity is the lifeblood of a company, and the ability to unlock liquidity quickly requires treasurers to have a flexible, nimble and proactive structure that enables them to align treasury processes with their company’s growth strategies and make informed and strategic decisions for deploying corporate cash.

The treasury structure must be set up for performance and scalability – corporate treasury must have the capacity to handle a growing amount of work or rising volumes by sustaining or bettering their performance in terms of profitability or efficiency commensurate with its size and complexity of operations. For example, if a corporation were to acquire another company, expand into a new region, or set up a new subsidiary, their system must be able to merge the treasury policies and processes of the acquired company with itself, add new currency to the foreign exchange portfolio, capture the cash flows of the new subsidiary, handle a larger number of bank accounts, or execute higher transaction volumes, all while working as expeditiously as before, even though more people are using it in their headquarters or around the world.

Looking ahead, robotics, machine learning (ML) and artificial intelligence (AI) will drive treasury evolution into the future in this area.

• Insights (I): Apart from interpretation of liquidity data, treasurers must be closely connected to the rest of the business and foster strong working relationships so that they can aid others within the company in understanding the implications of changing cash flows.This will also foster their understanding of the business from the commercial and operational side.

Corporate treasury should collaborate with other departments in the organization to establish suitable banking structures, reporting standards, and access to accurate, timely information that is distilled into actionable insights. This will enable treasury to uncover and resolve hidden gaps for the benefit of the company, as well as gain buy-in from senior management to augment their strategic relevance.

Continual improvements in the organization’s treasury technology infrastructure and better integration between disparate software systems are necessary steps to becoming a more robust and insightful treasurer.

Consolidating the data from risk analytics and management solutions, liquidity management tools, and inventory, payments, AP and AR systems into a centralized treasury system will not only result in better cash flow visibility and streamlined day-to-day operations, but also facilitate more data-driven, informative and time-sensitive decision-making in an uncertain business environment.

⃰ Disclosure: Strategic Treasurer owns CTMfile.

Read more from the series:

Part 2: Bank relationship management

Part 3: Cash concentration

Part 4: Liquidity structure

Part 5: Treasury owns cash

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