From the September 2011 issue of Treasury & Risk magazine

Early Start on Day’s Data

KeyBank now offers customers a single, earlier presentment of the transactions in their controlled disbursement accounts.

In today’s world of lean treasury staffs and tight liquidity management, getting information even an hour earlier is nothing to sneeze at. So Kimberly Kruczek, treasury manager of $12 billion Parker Hannifin, isn’t sneezing. Since Aug. 22, she has been getting a single, final disbursement presentment by 9 a.m. ET from KeyBank, where the company has its controlled disbursement accounts (CDAs). “It is important,” Kruczek says. “We can’t complete our cash position without the final controlled disbursement account totals. Getting that done earlier allows us to invest or borrow sooner and frees up my morning for project work.”

While banking technology has changed, the schedules at most banks have stayed the same for many years. Jim Graves, Key’s senior vice president and core services team leader, says the bank essentially converted to receiving image files of checks drawn on Key accounts in 2009, picked up a few stragglers in 2010 and is now 100% image-based. “We’ve been getting the files earlier,” Graves says. “Now we’re delivering the data earlier.”

A company that writes checks from a controlled disbursement account is informed each day of the value of checks presented, which it then funds. Prior to Aug. 22, Key CDA clients were receiving the standard two presentments, at 8 a.m. and 10 a.m. Now they get just one, at 9 a.m., and it’s final.

The advantage that provides is particularly clear for positive pay. With two presentments, Key clients received their exception items by 2:30 p.m. and had until 6 p.m. to approve or reject unmatched items, explains Megan Short, vice president and senior product manager for disbursements. Now they can see exception items by noon. “You’d rather not be making such decisions after 3 p.m.,” Short says.

Knowing their cash position earlier allows the people who sell Parker’s commercial paper to enter the market sooner, when investor interest is at its peak, Kruczek notes. Will this reduce the company’s cost of borrowing? Not for a while, she says. In today’s low rate environment, Parker’s A1/P1 paper provides a return of about 14 basis points, so there is not much spread to work with. But in a normal rate environment, being an early bird could bring savings.

There’s also a small float advantage for Parker, a Cleveland-based provider of motion and control technology. Under the old program, if an item came in for payment at 9:30 a.m., it would be included in the second presentment and Parker would have to fund it that day. Now Key holds it until the next day’s presentment, which gives Parker a day’s float on those few items, Kruczek notes.

Graves says it was no longer advantageous to hold the decision-making window open. “If a check comes in later, we will present it the next business day,” he says.

Gaining the hour or so is particularly helpful when Kruczek and her one primary colleague who can also set the cash position are both out of the office. In that case, staff in Luxembourg take over the task and get the final cash position at 2 p.m. Luxembourg time instead of waiting until 3, Kruczek points out.

Parker gets its presentments by using its SunGard AvantGard Integrity workstation to pull data from Key. Going from two pulls to one means a one-time reprogramming by the company’s IT staff, but it also means Parker will only pay the bank for one file transfer a day instead of two, another small savings, Kruczek notes. Parker still uses checks for many of its disbursements. All but a few are executed from CDAs at Key, she says. 

Since the move to a single presentment carries no cost for treasuries and in most cases requires no change in operations, the response has been almost universally positive, Graves reports. Most users log onto the bank’s Web site to get their report. Now they have the option of doing it once instead of twice. Larger companies like Parker that take the presentment as downloaded BAI files to a workstation or AP system may have to make a systems tweak.

In the heyday of controlled disbursement, a primary benefit was float. “Float is still significant,” notes Dave Robertson, a partner at Treasury Strategies, “but it’s not enough to drive decisions in most treasuries today.” Another benefit has been getting information to support identifying a cash position early in the day. Companies that could pin down their cash position early could go to the markets and earn 30 basis points more on investments or save about that much on borrowings, Robertson points out. Now the information is more useful for risk and liquidity purposes, since having a central point of disbursement helps control flows and monitor cash levels.

That’s certainly true at HanesBrands, the $4.9 billion clothing maker in Winston-Salem, N.C. Float has essentially disappeared as a value consideration in the company’s disbursement strategy, reports senior treasury manager Robert Gosma. Instead, positive pay, including payee matching, counts more than presentment times. Check payments are shrinking fast, to just $2 million a week, vs. $50 million disbursed by wire and ACH. With minimal float and shrinking check clearings, cash forecasting has become more accurate, Gosma adds.

Many banks, including J.P. Morgan Chase, still routinely make two presentments, but image-based efficiency has shrunk the dollars involved in the second presentment from 20% to 35% of the day’s total in 2002 to less than 1% today, notes Stephen Markwell, executive director and head of disbursement products at J.P. Morgan. “Companies now want richer reporting that is inclusive but also analytical,” he says.

Increasingly, disbursement reports include ACH and wire, but integrating card payments is still an elusive goal for most banks. Because wires, ACH transactions and checks clear on different schedules, having a single daily cutoff is not practical. Indeed, J.P. Morgan may require funding for an outgoing payment as late as 11 p.m. ET, Markwell says, adding that in those cases, an automatic transfer from the funding account normally provides hands-off funding.

Basic check processing and presentment services are very mature and highly commoditized, says Sayantan Chakra-borty, North America payments head for Citigroup’s global transaction services, but that is not what most treasuries care about.

“They want a package with integration of all payment types, including card payments,” he says. “They want positive pay and other fraud control features.” They also want scrubbing service, based on artificial intelligence and preset parameters, Chakraborty reports, so that not all positive pay mismatches are thrown back to treasury for resolution when many can be resolved by the bank.