Companies consolidating cash management providers.

Corporations have stopped lopping off cash management banks from their ranks of service providers, but have continued to consolidate their business in the hands of one or two key banks with whom they are trying to forge long-term and sustainable cash management relationships.

That's the conclusion of Greenwich Associates, based on its 2006 U.S. Cash Management Research Study. The stabilizing of cash management bank rosters reversed a four-year trend in which U.S. companies had trimmed those lists. However, lead banks are getting more action: on average, U.S. companies allocated nearly 60 percent of the cash management business to their lead provider last year, up from 56 percent in 2005.

Companies cite two trends driving them to consolidate their cash management business into deeper relationships with lead banks. A certain proportion say the desire to maintain strong relationships with large credit providers is a motivating factor. But a bigger proportion of companies say that their growing use of electronic payments and receipts is prompting them to direct more business to their top providers.

"Almost 45 percent of companies' payments and 47 percent of receipts are now processed electronically," says Greenwich Associates consultant David Fox. "The efficiencies created by electronification eliminate some of the need for companies to maintain large numbers of cash management relationships. At the same time, the up-front costs associated with developing and implementing these systems encourages both banks and customers to make serious commitments."

Indeed, the consolidation of the cash management business reflects the broad changes taking place in the industry. Advances in technology, increased expectations for greater geographic reach and the desire for customer service professionals to own problem resolution have made cash management even more of a scale business. It requires significant investments on the part of providers and considerable up-front commitments of resources and time on the part of customers.

In fact, a paltry 1 percent of U.S. corporations 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 percent in 2005 to 6 percent in 2006.