Why senior executives should care about RFPs.

Issuing requests for proposals (RFPs) for cash management and other treasury services has become standard procedure in most companies. Effective RFPs provide a way to stimulate competition for your business, establish good working relationships with banks and lower bank service costs.

In a recent survey about RFPs, almost half of the treasury management respondents said their company planned to issue one RFP between 2004 and 2007; just over half said their company would issue two or more RFPs in those years; and 15 percent said their firms will do one RFP per year. Half of these RFPs will be for a single service, and half will be for multiple bank services. Furthermore, respondents said they would consider issuing RFPs for services such as custody services, investment management, forecasting systems, letters of credit and bank lines of credit.

The benefits of an RFP only accrue if it is effective. An ineffective RFP is a waste of staff and time. Bankers say that many RFPs they see are hard to decipher. They can't tell what's important to the company, what it is looking for in specific terms or what the company's requirements are. Not surprisingly, ineffective RFPs usually result in unsatisfactory proposals from banks.

The Role of the CFO or Treasurer

The CFO or treasurer of a company has a unique role in the RFP process to ensure that the RFP is consistent with the objectives of senior management. And there are potential pitfalls to be avoided.

For instance, many banks today are interested in granting lines of credit only to a company that can also give them additional noncredit business. Yet many banks are beginning to pick and choose which among the hundreds of RFPs they receive each year they will respond to. In fact, one money center bank has developed a quantitative method (similar to credit scoring) by which it evaluates RFPs.

While not a part of the RFP team, the treasurer or CFO knows the larger picture and must supply the oversight to make sure that the appropriate banks are included. The staff involved with the daily activities of cash management may use different criteria to identify potential RFP recipients.

In addition, the CFO or treasurer can provide the leadership to keep the RFP team focused on the specific, identified goals of the RFP project. The better the RFP, the more likely it is that the banks you want to respond to it will respond. The treasurer can provide a review function to check on the key points of the RFP:

* A clearly stated purpose

* Specific requirements

* Volume (actual or estimated) for all services requested

* Adequate time for the banks to respond.

Many firms will buy a book of RFP questionnaires and use them all, indiscriminately. With RFPs, more is not necessarily better. Again, the CFO can be more objective and help keep the RFP team on track by keeping them focused on what is and is not needed. Also, the CFO is in a better position to judge if the team is floundering and needs additional outside help.

Another important role the treasurer plays is symbolic. For instance, if there is a bidder's meeting before bank proposals are due, the presence of the treasurer tells the bankers that this project is important to the firm. Conversely, it is just as important for the treasurer to stay out of the details.

It must be made clear that all communications about the RFP must be addressed to the persons designated in the RFP so that you avoid bankers' "end runs" around the RFP team. (This can happen, with disastrous results.)

During the evaluation of the bank proposals, the CFO also plays an oversight role. Without getting involved in the analysis, the CFO should monitor the process and discuss the results with the RFP team or team leader when the first cut is being made. Here again, the CFO brings information to the decision-making process that may not be available to the RFP team. This may affect the final decision about which bank or banks to select.

Treasurer's Job: Notification

Finally, the treasurer should supervise the conclusion of the project. This means making sure that the bank(s) selected--as well as those not chosen--are informed in a gracious manner. You never know when you might want to do business with them in the future.

Last of all are the legal agreements. While the RFP team and the firm's lawyers will handle most of the work, the treasurer may be required to handle negotiations on specific items and certainly should be aware of any terms that are out of the ordinary.

Summing up, the CFO or the treasurer has a guiding role in the RFP project, as well as a symbolic one. It may not be time-consuming, but it is critical to the success of the project.

Joyce R. Ochs and Kenneth L. Parkinson are managing directors of Treasury Information Services, a New Jersey-based consulting and publishing firm whose latest book is Optimizing Bank Relations. They can be reached at 609.466.2300 or www.tisconsulting.com.