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Treasury Management Challenges and How to Solve Them – Part II

Treasury Management Challenges and How to Solve Them

Are you wondering how to deal with your top treasury management challenges and how to solve them? You’re not alone. In this three-part article, I share the top challenges that treasury management officers (“TMOs”) face. I then provide you with ideas on how to deal with each one. In Part I we discussed the top two challenges: waiving fees and the importance of turning Account Analysis System on. Let’s continue with the next three top challenges:

Challenge #3: The Earnings Credit Rate (ECR) is not set nor managed.

Many institutions don’t know how to set the ECR and once set, some institutions don’t monitor nor manage it periodically.

Solution: Once you turn the Account Analysis System (AAS) on, the next step is to set your ECR. There are various methods to calculate the ECR but the calculation based on the 90 Day T-Bill is the most common. Some institutions simply assign a rate with no calculation. But you need to monitor and manage the ECR carefully as it is the main driver of bottom-line TM fees your institution receives. The Asset/Liability Committee (ALCO) meeting is an appropriate place to discuss and set the ECR at least quarterly.

The ECR calculates the “earnings credit dollars” a business customer or member uses based on their “investable balances” to offset their account and treasury management fees. If the earnings credit dollars are higher than the fees, then the customer loses the unused credit dollars. If the earnings credit dollars are lower than the total fees, then the difference (or shortfall) is “hard charged” to the business checking account.

Challenge #4: Lack of education and knowledge about the treasury management products.

The three main reasons business development officers (sales team) don’t sell treasury management services and products are: 1) Lack of knowledge of TM products. Bankers are afraid of getting a question they won’t be able to answer; 2) Because they don’t know the products, they don’t value them; and 3) They are not incentivized to sell the TM products.

Solutions: 1) You need to educate the business bankers. But you also need to educate the senior leadership, deposit operations personnel who support the services, and the retail staff on how to make appropriate referrals for TM. Everyone needs to learn and understand the TM products and services. However, not everyone needs to be an expert. The knowledge of how to identify a potential user of TM products is enough to make a referral to the Treasury Management Officer. 2) Education also creates awareness of the value of the TM products. 3) Create an incentive compensation plan for the sales team that includes bringing additional core deposits and non-interest fee income which includes TM fees.

Challenge #5: Treasury Management department (or TMO) reports to retail.

In many institutions the treasury management department reports to the retail side of the institution. This organizational structure creates confusion. Therefore, your business customers or members are not serviced appropriately. You also miss opportunities to cross-sell additional TM products or, in some cases, you may place the small business in the wrong services.

Solution: Change the reporting structure as soon as possible. Treasury Management has two key components: Sales and Operations. Therefore, you have two main options on how to structure the department:

Option 1: The entire TM department reports to Business Banking.

Option 2: The sales side reports to Business Banking and the operations side reports to Deposit Operations. Typically, institutions under $250 million in assets, may need the retail bankers (universal bankers) to open the business checking accounts, but the best structure is to have deposit operations set up all the TM products and services.

We will continue with the next top challenges that treasury management officers (“TMOs”) face in the "Treasury Management challenges and how to solve them" Part III of this article.

Treasury Management Challenges and How to Solve Them – Part I

Treasury Management Challenges and How to Solve Them

Are you wondering how to deal with your top treasury management challenges and how to solve them? You’re not alone. Community banks and credit unions around the nation experience similar challenges in their Treasury Management departments. In this three-part article, I share the top eight challenges that treasury management officers (“TMOs”) face and provide you with ideas on how to deal with each one.

As I work with community financial institutions around the nation, the top concern I hear is “The bankers are giving away treasury management services.” One institution’s TMO shared once, “Marcia, every time they give away our products and services, they’re telling us we don’t matter.” Wow! That comment got to me. So, I am purposed to increase visibility and create awareness of the value of treasury management services. Allow me to start with the top two challenges:

Challenge #1: Waiving all (or most) treasury management fees.

Waiving your treasury management fees creates two major issues in your institution. First, you’re missing out in an extraordinary source of non-interest fee income. One of my clients discovered the institution waived $1 million dollars a year in TM fees. That is unacceptable! Second, your employees’ morale suffers as the employees who support and sell TM products feel they don’t matter.

Solution: Stop waiving fees! That sounds like the right, simple solution, right? It’s not that simple. Charging for products and services that have been “free” takes a change in culture starting at the top. The president/CEO needs to acknowledge the value of TM services. One way is to allocate the appropriate resources to sell and support TM services.

Challenge #2: Account Analysis System is turned off.

Many institutions currently have the Account Analysis System (AAS) turned off . Therefore, they waive all the TM products or “hard charge” (meaning, directly charge the business checking accounts) for specific products used. Business customers do not like hard charges.

Solution: Turn Account Analysis system on. Imagine the AAS is your automatic billing system for your business clients. When it is turned on, a specific business checking account type triggers the core system to produce an account analysis statement monthly. This special “analyzed statement” is like an X-Ray of your business customer or member’s monthly activity. Therefore, the statement helps you identify cross-selling opportunities. You can also encourage your customer or member to increase their core deposits to cover their fees.

The Account Analysis system allows you to charge for all your treasury management products and services. Therefore, the only service that should be hard charged on the day of the incident is overdraft fees. Now businesses pay for all banking services (including account maintenance, checks written, deposited items, deposit tickets, etc.) with their core deposits! This is called “soft charging.”

We will continue with the next top Treasury Management challenges and how to solve them in Part II of this article. Stay with me as there are several other top challenges!

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