Enterprise Risk ManagementTreasury Management
Even smaller treasuries are building solutions to achieve enterprise-wide integration
At $800 million Great Lakes Synergy Corp., assistant treasurer Mary Bravo oversees a homegrown invoice system that matches thousands of invoices a month to purchase orders, within a preset tolerance for deviation. It then accepts the ones that comply and approves them for payment. The company’s largest affiliate, Composite One LLC, was the first to start working with major suppliers to get them to transmit electronic invoice files that can now be run against purchase orders using the tool.
This accounts payable (A/P) system is the byproduct of a cooperative effort between treasury and IT, which set out to automate A/P with a solution that mimics lockbox on the A/R side. According to Bravo, the new tool already reached a 70% hit rate.
Now, Bravo and her team at Great Lakes Synergy are working to raise that rate by making the exception reporting more visible. “If an invoice is more or less than a purchase order, we report that across the field, which brings true accountability for buyers and regions,” Bravo reports. “When senior executives see the results, people become more careful to dot the I’s and cross the T’s. It gets us to the root of the problem, which is probably a mistake on our side 80% of the time and on the suppliers’ side 20% of the time. The better our hit rate, the less time we spend chasing down discrepancies. We’re cleaning up the process on the front end.”
Innovative treasuries learn early on that if you need a solution that’s a little bit different, sometimes it’s just better to build it yourself. For large ones, like those at Microsoft Corp. or General Electric Co., that decision may not present as big a challenge as it sounds. But when you are sitting with a staff of four reports like Bravo at Great Lakes Synergy, going it alone takes guts. “It’s always hard to find the time,” she admits, “but the easy partnership with IT made a big difference.”
A few midsize pioneers, like Great Lakes Synergy, have always been on the leading edge of the paper-to-electronic revolution. They had visionary CFOs and treasurers who knew how to exploit nimbleness. But now a majority of middle-market companies are catching the wave. “They’re asking how they can leverage technology to reduce banking fees,” reports Danny Peltz, executive vice president of the wholesale Internet and treasury solutions group at Wells Fargo. “That’s always top-of-mind. But they’re also asking how they can make their people more efficient, and they are willing to pay higher fees when it produces greater savings.”
There’s no doubt—midsize treasuries are starting to more closely resemble large corporate treasuries, particularly given the pressures from increasing globalization. Leveraging the global economy forces formerly domestic middle-market companies into the world of cross-border payments, FX exposures and SWIFT messages, says Dan McCarty, senior vice president for treasury management services at Detroit-based Comerica. “These are brand new issues for many companies, and they are looking for global services from their banks.”
They are also looking for more integrated solutions to fit in with more sophisticated technology. “Now, the middle-market companies are asking for integrated solutions,” reports Dub Newman, global product management executive at Bank of America. “They want services that link to their ERP systems and create straight-through processing.”
Admittedly, the A/P ingenuity at Great Lakes Synergy is special. Far more typical are the gains middle market treasuries are finding in remote deposit capture. To see how remote deposit is streamlining collections and A/R for even relatively unsophisticated treasuries, one need look no further than $228 million RAF Industries Inc., based in Jenkintown, Pa.
That cluster of more than a dozen independent S corporations with common ownership, ranging in size from $10 million to $150 million, has no treasury staff at all, reports CFO Kirk Hampson. Each entity has its own bank accounts, which used to mean local depository and checking accounts scattered across the country. Now, all accounts are at PNC Bank, regardless of geography. RAF uses a ZBA structure to sweep its individual PNC accounts into a PNC concentration account, where funds are used to pay down debt. It’s efficient concentration without a treasury to make it happen. “Each company still has its own account and can log on and drill down to see detail, but I can see all the accounts at the corporate office and see that cash is used efficiently,” Hampson says. “We don’t try to run the companies, but we take advantage of master agreements for insurance and credit.”
Even decentralized, RAF uses an array of tools usually associated with a staffed treasury function, including online balance reporting, funds transfers, ACH, account reconcilement, positive pay and lockbox, reports Regina M. Kelly, the PNC assistant vice president responsible for the RAF account. But remote deposit is having the biggest impact. Even business operations located close to a PNC branch find it more efficient to scan and transmit incoming checks for deposit instead of going to a branch, Hampson notes.