Corporate treasurers are wasting money Monday, January 08, 2007
This news doesn't surprise me.
Companies participating in Greenwich Associates’ 2006 U.S. Cash Management Research Study are steadily increasing the share of their total cash management business awarded to lead banks. On average, U.S. companies allocated nearly 60% of the cash management business to their lead provider in 2006, up from just 56% in 2005.
....Only 1% of U.S. companies now say they put their cash management business out to bid every year, and the proportion putting it out to bid every 13 months to two years dropped from 9% in 2005 to 6% in 2006. Meanwhile, 40% of companies say they put the business out to bid every three to five years and more than a quarter do so only once every five or more years. “The share of U.S. companies reporting that they never put their cash management business out to bid increased from 21% in 2005 to 28% in 2006,” notes Greenwich Associates consultant Don Raftery.
What the report fails to highlight is the savings that usually result from a competitive tender of your banking services. Corporate banking is a highly competitive market, with much of the cost attributable to commoditised services. Consequently, it would be a genuine surprise if you've got the best deal with your current provider.
Back when I was first appointed Director of Treasury for a large brokerage house (a previous life), one of my first actions was to put the service out to tender. Surprisingly this hadn't been done for many years, for whatever reason. The savings that resulted were considerable, with the added benefit of getting a whole range of additional services included. Embarrassingly for them, even the incumbent was able to substantially improve on their pricing - it prompted many questions about why they hadn't been more proactive and had instead sat creaming profits.
Whilst you can't do this annually, every three years is not unreasonable - this principle is restricted to treasury either; every bought in service should be regularly reviewed. If you don't do this, you are almost certainly leaving money on the table for no good reason other than laziness.
Labels: banking treasury