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How to work with your bank.

A unique bank evaluation program established by BP America has improved the cash management service banks provide and made treasury life easier.

Have you ever been involved in completing bank quality surveys or participated in banks' phone call market surveys? Have you felt that your company was not directly benefitting from these exercises? Have banks ever tried to sell you a new and improved service without really understanding what your needs are? Our treasury team at BP has experienced all of this, but we felt that such methods of communicating with banks were not effective. We weren't getting our message across.

So, in 1990, we decided to design and develop our own evaluation techniques to measure both the banks' performance and our service expectations. The process would allow us to identify more readily those banks that were meeting our expectations for the delivery of cash management services and to communicate with the banks how well we felt they met our needs.

Now, two years later, service levels have improved. The process has also made us more aware of who are the quality service providers. Banks that consistently perform below expected levels are weeded out, and those that consistently perform well are awarded business from displaced banks.

While many companies have similar programs, we believe ours at BP America is unique in at least three ways. First, it conveys to the bank exactly what is important at our company. Second, it compares the service quality of different banks. And, third, it recognizes people on bank staffs when they give superior service.



What is the most effective way to evaluate a bank's services? Like many companies, we were being bombarded by surveys from so many banks that we hated receiving them. And even when the banks visited us to discuss the quality of their service, we could remember recent problems but not their performance over a period of time. Rather than repeat this process for each bank, we decided to introduce a single program that would communicate our needs to all banks.

After two years, we have identified eight major benefits from our bank evaluation program:

* Each bank learns just how good its service is.

* Our company confirms its expectations of a bank.

* The process enhances the return to relationship banking.

* Both parties have an opportunity to discuss strengths and weaknesses.

* Both parties can see how a bank's performance is rated against that of other banks.

* The process fosters communication and becomes a catalyst for change.

* The process also helps the bank marshal resources to address our problems.

* We can recognize bank departments and individuals who are performing well.

To prepare for a bank evaluation, we consider the following points:

* Which banks are we going to evaluate? All banks? Those which provide more services? Those whose total fees are higher?

* Which services are we going to evaluate? And is accuracy of content more important than the services being prompt?

* What will be our source of information?

* Who will be involved on the company side? They should be the users of the bank's services, not just treasury. Examples are accounts payable, accounts receivable, and credit.

* How often will the evaluation be performed? Quarterly? Annually?

* Who has time available? Who should coordinate the effort and set the target dates?

The largest part of an evaluation is compiling the data called for by each type of service a bank provides. Most services call for evaluating eight to 12 categories. These cover such activities as intra-day notification, data entry, problem resolution, disbursements, account administration, etc. Bank correspondence is one source of such data. So are bank call reports and documents about bank meetings. But we also need to interview users of the bank's services.

Throughout the process, our treasury staff serves as the liaison between the banks and our business groups that use the bank's services. After reviewing correspondence, meeting summaries, and so forth, they discuss each service with user groups, such as credit, receivables, and payables. How well do they use these services? Are there problems? Is there one bank that performs a particular service better than other banks?

After the data is gathered, it must be evaluated. Treasury then critiques the evaluation. If the bank performance is less than satisfactory, for example, that finding needs to be justified by examples. Or if the bank is performing better, especially against its peers, that finding is supported.

Of course, different people using a bank's service will have different perceptions of its effectiveness. It's easy to remember the one wrong thing done last year and forget the nine things that went right. Any such conflicting views need to be resolved.

The first draft of the report is circulated among five or six members of the treasury staff. Following their critique, the process is repeated once more for banks with which we have a simple relationship, perhaps two or three more times for a bank with which we have a complex relationship. Finally, the staff meets to discuss all the reports, often playing devil's advocate. How does the evaluation look from the bank's perspective? Will it make sense to the bank? Is it consistent? Does the information being conveyed carry the right message? Once the process is completed, comparisons are made. For example, if we are using lockboxes in four banks, we compare the ratings of all four of those banks. Does each rating make sense?

When the evaluation is presented to the bank, the report goes to both the cash management officer and the relationship officer. We explain how the information was gathered and what the ratings mean. And we offer to review the evaluation in person.

At this formal review around a table, there should be no surprises. We are candid about poor performance, recognize by name those who performed well or provided special services, and reinforce our performance expectations. We discuss the bank's commitment to superior service and any changes we plan to introduce during the year, from a major divestiture to seeking new bids.

To sum up, a bank evaluation is a two-way communication process. While each one takes time, we think the benefits outweigh the costs. Three are most important:

* We are forced to examine our own operations more closely, such as deciding which services are "must have" and which are "nice to have."

* We eliminate administrative time spent following up problems.

* We make life easier in the department because service becomes accurate and prompt.

Given that the cost is equal to one person's labor for one month, we think it makes effective use of our manpower resources.



Let's look at one bank evaluation. We now have two years of bank evaluations under our belt. In the most recent, we evaluated 14 of our 215 bank relationships. This represented 76 percent of the banking fees we paid, or about $3.5 million.

Our program focuses on banks that provide cash management services, not credit services. This includes our lockbox banks, our control disbursement banks, banks where we concentrate business, and our foreign currency settlement hank. While the process requires the equivalent of a man month, it is spread over a number of people during a two-month period.

Since BP America has a number of company-operated service stations and truck stops across the country, the first category we rate is the retail location account. We have these concentrated in 200 bank accounts across our marketing area. Each bank transmits deposit information to us that we match up with computer information generated by sales at each service station. So we rate the deposit reporting service, as a category, along with adjustments processed per instructions and the responsiveness in resolving problems. (See the table at left for two sample segments of the evaluation and for an explanation of how the rating system works.) For Bank Ten that we will discuss here, our rating was 3 in all cases, so it met our expectations 100 percent. (Bank Ten is a hypothetical bank used for purposes of illustration. The overall rating does not reflect an actual bank.)


In rating this bank's wholesale lockbox, we gave 2s - on a scale of 1 to 5 - for accurate/timely intra-day notification and the lockbox data entry. This was because intra-day reporting was late at least once a week, and some of the 8,200 lockbox items processed each month contained duplicate data. We noted that the latter had been improved, because it hasn't happened in the last 30 days, but we still rated the bank at 89 percent, or unsatisfactory.

The next category is the retail lockbox. Here, we gave intra-day notification a 2 again, because it is causing us either to leave balances or to overdraft the account, neither of which makes us happy. We also have trouble tracing the problems back through the bank's system, because it operates with a third party and doesn't have access to a lot of information. So it got 2 for problem resolution, and we faxed the bank staff the details so they could trace what happened. This bank also got a 2 for competitive price. We try to negotiate pricing contracts every three years, and this bank came back before then, wanting to renegotiate. The overall retail lockbox rating was 84 percent, below expectations.

We next rated the bank at 89 percent on previous day balance reporting, because the third party information it was using was at times unreliable. But we rated account analysis/statement advices and account administration at 100 percent. The former category carries values of mostly 2s, because we're looking at basic things - like accurate pricing, volume, and invoices - even though errors in them can cause untold headaches. The bank also received 100 percent, or satisfactory, for account administration, which covered the implementation of change, assistance with emergency situations, and the notification of bank changes.

Our 100 percent rating for the bank's technology was based on both their basic cash management services, such as lockbox or controlled disbursement, and their state of the art cash management services, such as EDI or image-based processing. We also rated the user friendliness of the systems. A bank can have the best system in the world, but if our treasury staff doesn't use it because it is too complicated, it does us no good.

As for other services, we rated the customer service staff at 120 percent, or superior. We gave a 4 for its knowledge of bank operations and its responsiveness to problems. And we cited one individual by name, recommending that she and her staff be commended.

The bank almost exceeded our expectations for the cash management calling staff. We rated it at 109 percent and cited both the calling officer and the administrative assistant by name for their knowledge of bank and company operations. In another case, we gave a relationship officer a rare 5, because she really knew both our company and our industry and would call with suggestions about how to save money, how to be more efficient. That really was above and beyond.

The last category we rated was the relationship officer. We were upset that this position had changed three times during the year, and twice the bank neglected to tell us of the change or who the new person would be. These are no-nos, and we rated the bank at 87 percent.


Once we complete the evaluation of a bank, we list its category subtotals on a summary sheet, along with the subtotals for all the banks we have evaluated. (See the table below.) Not every bank is rated in every category. For Bank Ten that we have been describing, we left out ACH processing, control disbursement, payroll disbursement, and a number of other processes and specialized services.


Listing the scores in each category for each bank proves to be a useful form of benchmarking. Banks see how they fared against their (unidentified) competition. A bank with a low score on a service for which it is a major provider should start thinking when it sees a competitor with a high score. After two bad evaluations, in fact, we will move the business.

We're not really sure what the banks do with the information they receive from us. The best banks talk about the information with their operations people, then set up a meeting with us. In the first year, one bank never talked to us about our evaluation. We sent the evaluation a little higher up the line the second year, and then they talked to us.


We had 12 banks come in this year, and each one took a different approach. Some banks wanted to go over the evaluation line by line. Others said: Okay, that's history. How can we help you next year? The right approach is the one the bank feels comfortable with.

We tell the bank where its services are weak and when services are working well. We cite individuals or groups that perform well. We gave out plaques this year for the best lockbox and the best control disbursement banks. For a wire service group that deserved recognition, we showed up in person with small gifts. This helps keep bank employees motivated to provide us with the best service.

At the discussion, we review pending changes in BP operations, such as acquisitions or divestitures. Or whether we are consolidating activities and need new services. We also ask what we are doing wrong. How can we make the relationship better? Do we need to give better account instructions? Are we properly authorizing transactions? Do we give enough lead time? We also want to know if the bank staff and our staff work well together. And, of course, we always ask the bank to critique the evaluation process itself.

These discussions encourage frank communications. For example, bank executives might say: We have this service. How could you rate us low on it? And we find out that it was the service from their education or marketing people that was poor; we just hadn't known about it.

Finally, we confirm that there will be ongoing feedback between both parties. If either party is doing something wrong in January, it doesn't want to wait until the following year to find out. We rely on phone conversations and face-to-face meetings to avoid surprises during the formal evaluations.


The heart of the process is improved communications. Both parties become fully open about what is going on in their organization. This encourages realistic service expectations and helps to improve both bank and company performance. Once a client identifies a problem, the bank does not want to see that problem raised in the second evaluation.

The process also helps us to compare service providers. Should we decide to offer a new service, we can see which banks perform well in the particular area to be affected.

Finally, costs are a big factor these days. We find evaluations to be very helpful in improving our efficiency. Our ratings may be on the subjective side, but we get a lot of value out of these evaluations for the manpower that we put into them.
COPYRIGHT 1992 Financial Executives International
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:includes related article; cash management services offered by banks
Author:Buchanan, Karen M.
Publication:Financial Executive
Date:Mar 1, 1992
Previous Article:Benefits that bend.
Next Article:Insurance on a global scale.

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