Our series "The Cash Management Journey" continues and we would like to follow up our last article on bank fee analysis with another in-depth topic. In this article we will present the bank strategy with various criteria for two different customer profiles, as this is the basis for further decisions for effective treasury management.

Times of crisis create tension in the financing business. The Corona pandemic and the Ukraine crisis have presented CFOs, treasurers and financial service providers with a number of challenges. The relationship of companies with banks, which count on the banks' quick reaction and flexibility when sales collapse, has been put to the test. The core banks, with whom business relationships have existed for many years, have proven themselves. Acquiring new banks, on the other hand, was virtually impossible in a tight financial situation. Many companies are now examining whether they should redefine their banking strategy and which banks should be considered. Particular focus is being placed on, among other things, the competitiveness of the banks in covering different regions and countries as well as on modern cash management. Especially in times of digitalisation and automation, modern functionalities in cash management arise in order to coordinate payment flows of liquid funds. The interplay of a sensible banking strategy and a suitable system selection is the key in this area.

Selecting banks purposefully

When choosing the right bank, a number of factors should be taken into account. Ultimately, day-to-day transactions should be carried out securely and quickly and costs should be kept as low as possible. This can already be done, for example, by choosing homogeneous banking groups - this saves transaction time.

What other criteria must be taken into account? There are now various options and instruments that should be examined more closely. For this purpose, two companies are described as examples to show that bank selection according to company construct requires different services. If we look at a fictitious company A, a medium-sized GmbH (limited liability company), which has its headquarters in Germany and only three national subsidiaries, and company B, which has international business and several subsidiaries abroad, the following differences in banking strategy emerge: 

Company A concentrates on basic functionalities that can be covered at low cost. The requirements consist of favourable conditions, an e-banking platform and a direct, personal communication channel with the bank. Company A's requirements can be covered by one or two regional or even larger German banks.

Company B, on the other hand, is interested in the following functions that the bank should offer:

The basic requirement should be the largest possible coverage of the different countries, so that the accounts of the subsidiaries are only opened at a few banks. This also enables physical or virtual cash pooling by the bank, which leads to higher liquidity and reduced expenses. The use of Payments on behalf of as well as Collections on behalf of could lead to a reduction of accounts. A powerful and versatile e-banking platform would be useful for the company. Company B's needs can usually only be met by large banks with international operations, which greatly narrows down the choice at the outset.

From a historical perspective, most companies have regional bank accounts, so as the size of the company increases, so does the number of different banking relationships. Finding a banking strategy aims to reduce the number of banks and bank accounts in order to reduce the complexity of the cash management processes applied. For this purpose, it is useful to develop a target picture, i.e. to weight the selection criteria in order to make a bank selection. The design of such a catalogue covers numerous criteria and details, for example:

  • Connectivity options and functions
  • Regional and national presence
  • Cash pooling functions
  • Connection and formats
  • Account opening and closing processes (eBAM)
  • Security
  • Integration
  • Service levels
  • Implementation approaches
  • Commercial conditions

Just as important as the choice of strategy are the opportunities that arise in connection with the use of modern systems in cash management.

Designing systems correctly - from account connection to bank communication to the cash pool

Once the choice of bank(s) has been made, the question arises as to how one can map one's banking strategy in the company. The goal is to generate the optimal benefit effect and to simplify daily liquidity planning and management. But what does this mean in concrete terms for the system and software requirements in the company?

Bank account management should optimally support master data maintenance, for example, through the possibility of workflows for account creation and a document management system for documenting the opening and closing of bank accounts or the deposit of authorised signatories. A connection of bank account and accounting account as well as the support of a meaningful account logic is advantageous and simplifies the user's daily work, thus creating more efficiency and increasing transparency.

The bank connection is also system-dependent. Many cash management systems can be connected to the banks for electronic payment transactions via EBICS, host-to-host, SWIFT, etc. This data exchange also makes it possible to receive data from the banks. This data exchange also makes it possible to receive or send account statements, memo items, protocols, bank fee statements and account opening documents. Without a system connection or in the event of a system failure, the files provided cannot be used automatically - for example for bank fee analysis or electronic account opening. It also makes monitoring and standardised payment transactions more difficult.

Clever cash management solutions also offer the possibility to start cash pooling system-controlled. This implies that accounts for different banks can be pooled among each other. Direct pooling at a bank would be preferable, but can certainly be supplemented by "manual" or self-controlled pooling with sufficient system support. Suitable monitoring for this process is indispensable. Here, an overview of the liquidity of all accounts at group and company level should be made possible in one system.

Our conclusion

An optimal banking strategy starts with the choice of the right bank(s), leads to a suitable cash management and cash pooling strategy as well as IT support and ends with appropriate reporting. In summary, there are the following intermediate steps that should be considered:

  1. Establishing a weighted set of criteria that reflects the structure of the business. 
  2. Comparison of eligible banks that can meet the chosen criteria.
  3. Selection of the bank(s).
  4. System selection: Development of a suitable system landscape that can technically map the criteria (from point 1 as well as reporting options) and gets by with as few system breaks as possible.
  5. Design of the operational day-to-day business in cash management to ensure optimal control and transparency.

Sources: KPMG Corporate Treasury News, Ausgabe 127, November 2022
Börries Többens, Partner, Finance and Treasury Management, Corporate Treasury Advisory, KPMG AG
Nadine Hauptmann, Managerin, Finance and Treasury Management, Corporate Treasury Advisory, KPMG AG