Trends in Cash Management: Information and Cost Effectiveness
Ferris, Tom, American Banker
NEW YORK -- Cash management, the child of high interest rate and float, is growing up.
The last few years have seen the field become increasingly important to companies trying to maximize the use of funds and to banks trying to strengthen corporate relationships.
However, like a growing child, the features of cash management are changing rapidly. And before long it, too, will have to pay its own way.
Observers see two trends emerging in the field.
The first is a gradual shift in emphasis from the management of cash -- that is, transactions -- to the management of financial information. This is occuring because the factors that spawned cash management, including inflation, float, and inefficient paper-based payment mechanisms, are being negated, while technological advances are leading to the development of systems that can gather financial information from widespread sources, consolidate it within the treasurer's office, and then integrate it with internal accounting data.
While the transaction is expected to take some time, a hint of the possibilities can be seen in the treasury-management systems now on the market. Many banks and vendors are offering software packages that run on desktop computers and automatically contact a corporation's banks each morning for account balances. The resulting data can be analyzed, and the more-sophisticated systems provide modules for cash forecasting and investments.
The systems were actively marketed this year and a couple of banks reported business was thriving, but some observers doubt that more than a few hundred of the packages are now in use. Important Income Source
The second trend in evidence is occurring at some of the large banks that provide cash management services to companies. These institutions, worried about narrowing profit margins on loans, are looking to transactional services as an increasingly important source of income.
Whereas cash management products have traditionally been provided at subsidized prices to attract corporate business, more and more banks are starting to expect those services to be profitable in their own right.
This theme was discussed at a conference this fall by the president of Philadelphia National Bank, Richard S. Ravencroft. "There is a serious question in my mind whether banks in the future will be able to use cash management as a loss leader and realistically expect to make it up on their total relationships," he said.
Philadelphia National is now pricing its corporate services to cover actual costs and show a profit, and other insititutions have started to do the same, according to Mr. Ravencroft.
The trends toward information management and restructured pricing of services, however, have not yet affected most cash managers. Their jobs this year continued to have two primary functions: extending disbursement float (the amount of time between when a payment is due and the check actually clears) so that companies retain the use of funds for as long as possible, and limiting float on the collection side so that incoming payments can be used sooner. …