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Stepping up to best practices: middle-market companies like the Columbus Regional Airport Authority and TriNet aggressively pursue treasury efficiencies.

Faced with volatile markets and economic uncertainty, middle-market companies are moving from OK practices to best practices. For example, the $81 million Columbus Regional Airport Authority in Ohio is liquid enough and stable enough that it could have continued to run its sleepy paper-based, manually intensive treasury operation indefinitely. Instead, CFO John Byrum brought Randy Bush over from the parking division as director of finance and administration, and together they launched a transformational project to replace outdated practices with best practices across the board. Their search for guidance led them to Treasury Strategies, an industry leader in defining forward-looking best practices as Treasury 3.0.

Treasury Strategies (TSI) first signed on in 2010 as a consultant to help CRAA design a slick but compact treasury gem and then re-upped in 2011 as project managers to direct the implementation of their design.

"We've implemented about 20% to 25% of our plan already, starting with collections," Byrum says. "Now we're pushing ahead with vendor payments and hope to complete the transformation in 2012." An airport authority is more like a small city than a small corporation, he observes. "We have our own police department, our own fire department and our own emergency medical personnel."

As 2010 started, the authority's collections were almost entirely paper checks and remittance documents that arrived at a post office box, where a hired courier picked up the mail daily and hauled it to CRAA offices. There staffers swam through a sea of paper to bundle checks into deposits to be physically carried to the bank and post the payments to A/R. Now virtually all payments going into the general fund (still mainly checks) arrive at a Huntington Bank lockbox, where they are imaged, while a different lockbox collects restricted funds.

"We discovered that we had two staff members spending hundreds of hours a year preparing deposits," Bush says. "We needed to find a better way. Now we do it all online. Staff almost never touches paper. The funds are available at least a day sooner. We had one employee leave and found that we didn't need to fill the position."

CRAA is "very impressive about adopting a plan and sticking to it," says Paul LaRock, a TSI principal who has worked closely with the authority. "We've seen other companies choose the latest technology, but they don't always execute crisply. These guys mean business. They want the cost savings and they want the time savings, but it's all part of their determination to get their processes right. They are very quality-oriented."

Posting to the Microsoft Dynamics NAV accounting system is still done manually from bank-generated images. "We haven't figured out yet how to automate that process, but we are working on it," Bush says. The lockbox archive is a disk the bank sends monthly. CRAA also adopted a more sophisticated bank account structure, with zero-based collection and disbursement accounts and a concentration account at Huntington that allows for efficient investment of cash while the zero balances reduce risk. Chase Paymentech handles the high volume of credit card payments from parking charges and gets the funds into the concentration account in 24 hours, even on weekends, Bush adds. "Cash now flows pretty quickly."

The much more aggressive use of bank cash management services has upped the banking fees CRAA pays, Bush says, but he estimates the savings outweigh the costs by $163,000 a year. While only one employee was not replaced, several others have been "repurposed" to more productive duties, he says. "With Treasury Strategies' help, we've become well-informed, able to go to our banks and aggressively negotiate the best fees," Bush notes.

While CRAA is aggressively improving processes and leveraging banking services, it has not stocked up on technology. TSI looked into sophisticated software like treasury workstations and in the end recommended that CRAA not buy it. "They were candid and said that on our scale, it wouldn't really pay us," Bush says. "We appreciated their honesty." The only third-party software CRAA uses is SymPro to monitor its very conservative investments, he says.

There is a lot more low-hanging fruit to pick, especially on the accounts payable side, Byrum says. "Our vendor payments are still 100% checks," he reports. "Our plan is to move to ACH whenever possible. We're starting with employee reimbursements because we already have that bank account information through our direct deposit program. We'll do employees in the first quarter and start phasing in vendors after that. We're already collecting bank account information from vendors."


"We're also looking into a p-card program," Bush adds. "We're hearing mixed reviews from companies we've talked with. Controls are an issue."

"We intend to improve our whole purchasing process," Byrum says. "We'll see whether p-cards will be part of that."

CRAA has $90 million of A+ or A2-rated revenue bonds outstanding and can draw on a $75 million A1+-rated commercial paper program as needed, Byrum reports. "Our debt is conservative, about $21 per enplaned passenger," which is how airports measure leverage, he says. "We're building a new runway with financial help from the FAA. We're using short-term debt but expect to pay it all off by 2018." The authority also keeps more than 500 days of operating cash in a strategic reserve, well above the standard 365 days, he reports. "Including restricted funds, we have almost $120 million in liquidity."

While CRAA does not live close to the financial edge, low debt costs and efficient liquidity management are important, Byrum points out. "We're not a hub for a major carrier, so our business is spread among nine airlines," he explains. "We need to be a low-cost airport so that we can offer attractive prices to airlines, which are very cost conscious these days."

The phenomenon of outsourcing noncore operations to tightly focused providers is feeding the rise of a new breed of middle-market company that is compact when measured by revenue or balance sheet but large when measured by its chosen activities. That's San Leandro, Calif.-based TriNet, with 2010 revenue of $192 million. That makes it jockey weight in the Fortune lists but an NFL player when it comes to payments because TriNet handles payroll, workers comp, and health and retirement benefits for more than 5,000 employers. For payroll alone, TriNet runs more than $8 billion a year through its bank accounts, first collecting from employers and then paying their 80,000-plus employees, explains Garth Hobden, vice president of treasury.

In the wake of TriNet's 2009 acquisition of a smaller competitor, Gevity, big gains in treasury efficiency have come from consolidating TriNet's PeopleSoft ERP system and Gevity's Oracle system into a single instance of PeopleSoft. Additional gains came from improving and automating the critical credit reporting function by getting to automatically upload Dun & Bradstreet credit scoring data when TriNet's sales team identifies a prospective client. Sales can then enter a verification of the deposit amount from the employer's financial institution and receive a consolidated credit score, and the system typically approves prospects. "It's all automated," Hobden reports. "We only see the exceptions." That automation has allowed TriNet to streamline its credit review process since the Gevity merger and keep the credit management headcount at one, he adds.


Exception management is critical because volumes are high. Every month TriNet originates 8,600 ACH debits, initiates 4,500 reverse Fedwires and processes 1,200 checks received from its clients. On the paying side, it processes more than 13,000 direct deposits and funds 18,000 paychecks monthly. "We also electronically deliver 200,000 W-2s, support 400 benefit plans with $700 million in annual premiums and 125 retirement/savings plans with $200 million in annual contributions," Hobden reports. And that makes TriNet a candidate for the best payment solutions on the market, which it gets primarily from Key Bank.

TriNet is "open-minded," says Michael Gordon, senior vice president and national sales director for KeyBank's global treasury management group. "They encourage us to bring them new ideas that would improve efficiencies and help them manage their working capital. They have a lot of critical deadlines to meet but predictable cash flows, so they have both the incentive and the ability to manage working capital tightly," he notes.

For its treasury operations, TriNet doesn't use a treasury workstation or the PeopleSoft treasury module, relying instead on internally developed software and state-of-the-art linkages to its banks (Key and Bank of America Merrill Lynch).

"We think we get the best payment services banks have to offer," Hobden says. "They understand our industry and how we need to handle payment files and reports." Processing is simplified because employers don't download files from their payroll systems prior to payday; TriNet is their payroll system.

Gevity allowed its clients to fund their payrolls by check, a slower and somewhat riskier process. Now TriNet insists that new clients fund either by ACH debit or reverse Fedwire. Existing clients that still fund by check must fax or e-mail the check to TriNet, which processes the check using a remote deposit program so the money is in the bank the next business day. The reverse Fedwire option is expensive for TriNet's employers--$15 to $20 a pop--so TriNet encourages ACH debit. Some employers apply debit blocks to restrict the amount of funds TriNet can access, but virtually nobody balks at allowing debits. TriNet is a trusted provider, and ACH debit is what principals in the professional employer organization industry expect, Hobden explains.

The heavy reliance on ACH debits for funding means TriNet is married to Key. "There is required NACHA documentation around ACH debits," Hobden says. "If we switched to another bank, we'd have to do the documentation all over again, which would be a huge job."

With positive cash flow, TriNet is a good but modest builder of cash. The private company won't say how much cash it holds, but Hobden says he doesn't maintain a large investment portfolio. One reason he doesn't have much cash to invest is that short-term interest rates are so low and TriNet runs up such hefty bank fees with all its activity, the best return on the cash is the banks' earnings credit rate. The company did borrow $60 million through a revolver to fund the purchase of Gevity but paid it all back in just 15 months.

TriNet's risk management is tightly focused on the creditworthiness of the employers it takes on since the company is legally obliged to make payments to employees even if it does not receive payment from one of its employer clients. That means careful credit review and collecting from employers before disbursing funds to employees are critical. Security deposits may be required for borderline employers. Collecting in advance means that TriNet has little A/R, but it still keeps a credit revolver with Key just in case. TriNet also makes a few payments in foreign currencies, an exposure it hedges with Bank of the West.

Evolving technology has made it feasible for companies with less than $100 million in revenue to join SWIFT directly, bypassing service bureaus, MA-CUGs and Lite alternatives, reports Nick Solinger, chief marketing officer at Traiana Harmony in New York City. "We put the process in motion when our first client requested it, and we were up and running within 30 to 45 days," Solinger says. "It was not a particularly lengthy or complex project." Traiana provides post-trade services and software for foreign exchange transactions and documentation to banks, asset managers and hedge funds, so it is a high-volume user despite its middle-market balance sheet.

Vendor segmentation and streamlined processing allowed $210 million Mosaic, a charity that helps the intellectually disabled, to wring a projected five-year savings of around $450,000 out of its payments processing. The savings come from $45,000 a year in reduced postage, streamlined workflow and one fewer full-time employee, reports Dean Wilson, vice president of financial operations at the Omaha, Neb.-based nonprofit.

Vendors now are divided into three groups. One group of more than 100, largely utilities, is authorized to debit Mosaic accounts directly. A Wells Fargo Bank service captures that information and uploads it to Mosaic's PeopleSoft A/P system, reducing what was once a 16-to-20-hour-a-month chore to just one hour.


A second group, accounting for about $14 million a year, is paid by p-card. The third group still is processed as traditional A/P payments, Wilson explains, but instead of Mosaic's 38 agencies across the U.S. receiving paper invoices, coding them on paper, and shipping the paper to Omaha, the invoices now are scanned, coded on screen and transmitted electronically to the executive director for approval and then payment. Payments had been made almost entirely via paper checks, but an aggressive campaign has converted about half of those vendors to ACH payments, he reports.

On the collection side, Mosaic receives more than 200 paper checks mailed to its office monthly; it now scans those checks and deposits them electronically by remote deposit into its Wells Fargo bank account, Wilson says.

In another big, less familiar cost-saving move, Mosaic dumped Windows and Microsoft Office in favor of Linux and Open Office, saving about $500,000 a year in fees and virus protection it no longer requires, Wilson says. "We only need virus protection now on one server in Omaha since all users log into one central server for their files," he reports.
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Author:Gamble, Richard
Publication:Treasury & Risk
Geographic Code:1USA
Date:Feb 1, 2012
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