Context: Tracking and analyzing bank fees is part of every treasury team’s mandate. The desired outcomes include finding differences between what a bank said it would charge and the actual fee—one element of reducing costs. It’s a critical and challenging task that takes on added complexity at multinational corporations with hundreds of accounts spread across dozens of banks.
- One NeuGroup member who presented a bank scorecard used in share-of-wallet management (featured in one of NeuGroup Insights’ most-read stories last year) told peers that finding discrepancies in bank fees and doing bank fee analysis is difficult.
- “We do not have a bank fee analysis tool implemented yet, so it’s very manual,” he said. “One of the things that we’re hoping to alleviate by implementing Redbridge is getting rid of that manual work.
- “But then, also being able to take those data points to the bank very easily and say, ‘Hey, this is what we negotiated, this is what you charged. What’s going on? You know, help us understand.’”
- Finding those discrepancies is a key reason a different NeuGroup member’s company had wanted banks to send invoices instead of letting them debit the fees directly from the company’s accounts. But a desire to automate is pushing treasury to switch to direct debit.
- As you’ll read, peers answering the member’s question agree that direct debiting bank fees is best practice, and still allows bank account managers to challenge fee discrepancies, often with good results. But debiting raises other issues for the member.
Member question: “Does anyone still pay bank fees via invoice anymore, or does everyone allow the banks to direct debit? We are exploring various process simplification opportunities. Historically, we have had the mindset that we wanted the banks to invoice us for bank fees, instead of direct debit.
- “The thought process was that it allowed us to make sure that we didn’t pay the banks more than they were owed. I don’t think we have enough discrepancies to warrant the extra work of pushing invoices through AP. We do still intend to review and benchmark our bank fees and negotiate variances.
- “I’d like to allow the banks to direct debit us instead of invoicing. Does anyone have any thoughts or advice on making this transition?”
Peer answer 1: “Great question. Across the treasury teams I’ve worked with, we’ve consistently had banks set up with direct debit for fees. I’ve encountered a few smaller regional banks that required invoicing and AP processing, but those were the exception.
- “In my experience, direct debits save time and ensure banks are paid promptly. Unless you have a TMS that can analyze bank fees as they are posted in order to validate billing accuracy, I would recommend that bank fee analysis be less frequent (typically quarterly) to save time and/or resources.
- “With less frequent bank fee analysis, I still found our banking partners were always willing to correct billing errors for the periods reviewed (in some cases I have been able to get the bank to provide credits over multiple years) and on a go-forward basis.
- “In most cases it’s an easy switch for the bank (potentially less so for smaller or regional institutions). The main internal alignment would be with accounting on how bank fees are coded since POs and invoicing would no longer drive where entries are booked.”
Member response: “The biggest holdup for us is definitely the accounting alignment.”
Peer answer 2: “I agree that allowing them to direct debit is the way to go. We have had several issues with incorrect fees recently and each bank was willing to apply a credit to our billing to correct.”
Peer answer 3: “My current and past companies have had bank fees direct debit wherever possible. For fee analysis, we have our account analysis statements feed into our TMS monthly to compare pricing actuals vs. agreed pricing.
- “For banks where we cannot get automated feeds of our fees, we do a quarterly variance review of pricing vs. agreements and total fees vs. our fee forecasts. If we ever find discrepancies in fees charged, we either have the banks refund the overcharge or apply a credit to our future fees.”
Peer answer 4: “Same for us: fees are direct debited, and we use a combination of a system and manual inputs to compare pricing actuals vs. agreed pricing. We are thinking about outsourcing the whole process; does anyone utilize Redbridge?”
Member response: “We are in the process of moving from a system to Redbridge for bank fee analysis. We’ve definitely had some challenges with getting the reporting that we need within the tool, but I think it will probably work in the long run.”
Peer answer 5: “We have fees automatically debited. Our banks honor price discrepancy refunds as long as it’s within a year.”
Best practice—with questions. The questioner told NeuGroup Insights she agrees with peers that “direct debit is going to be best practice.” That said, she provided this additional context and issues to consider. “The manual invoice process lets us have more control over when and what we are paying our banks,” she said.
- “Our current process allows us to choose a specific expense account to book each payment. That entry is typically further allocated to our business lines through a manual process, not owned by treasury. If we switch to direct debit, we are considering the following:
- “At what level do we want the banks to debit? At an account level, at a single summary level or somewhere in between?”
- “If we change this level, what does that do to the accounting entries needed? Does it impact any downstream allocations?”
- “Regardless of which bank accounts will be debited, we will need to work with cash accounting to set up rules to book the debits to the appropriate expense/clearing account.”
- “Do any of these changes impact our earnings credit rates/calculations? So far, our banks have confirmed no impact, but it’s still something to think about.”
- “If our bank fee payments will no longer flow through our AP process, how do we include them for 1099 reporting that is managed by AP?”
- “What are the cash flow impacts to this change? Will we be paying sooner than we would normally pay with invoicing? Will we be able to keep our payment frequency consistent (quarterly vs. monthly)?”
Bottom line. “Once set up, direct debit is going to automate the unnecessarily manual parts of the process,” the member concluded. “That will let us focus on the more important aspects of bank fees—such as competitive pricing/benchmarking, confirming contract pricing, identifying opportunities for cost savings, etc.”
