Cash Management Services Table of Contents Reduction of opportunity cost in a health care organization with CMS 4 Conclusion 5 Introduction The services offered by banks are getting diversified with time. Such multifarious treatment has been introduced to cater to the changing needs of the customers in the best possible manner. Through these specific services, banks try to attract and retain the loyal customers and thus attain sustainable competitiveness in the market. Among different services offered by the banks, ‘cash management service’ is often used by the banks to develop a healthy relation with its customers. Most of the banks offer cash management services to the retail customers (e. g.
companies) for cash flow processing, cash pooling and message service for the current accounts. All these services assist the clients to improve the efficiency of their day to day cash transactions. Clients get timely and accurate information of the monitory transactions (Huang, 2007, p. 83). The cash management services (CMS) is an assortment of different kinds of services, few of the most popular ones are discussed below: Lockbox service: If a retail customer receives a large number of payments through mails, then the customer’s account receivables will be directly collected in different branches of the bank and will be sent to the main account maintained by the customer.
Zero-balance account (ZBA): If a company has several accounts located in different places, then it becomes quite difficult to segregate the amount debited from the one credited from each branch. ZBA assists in managing all the branch accounts in a more organized manner. In ZBA, each day the account of all the branches start with zero balance and at the end of the day all the receivables and deposits made throughout the day get adjusted with the main account of the company.
The same thing continues the next day and the accounts of different branches start with zero balance. Automated Clearing House (ACH) Network: This is one of the most reliable and efficient network that allows batch–oriented electronic fund transfer system. This service is useful for those retail customers which have their operations in several locations. They often open accounts with different banks. As soon as the money is received in these accounts, it is transferred to the main account of the customer through inter-banking electronic fund clearance system (Center for Financial Training, 2009, p. 318). Comparison of different CMS offered by the sample banks For analyzing cash management services followed by different banks in US, three sample banks were selected.
During this process, the CMS offered by the sample companies is analyzed to identify the advantages and disadvantages associated with the CMS of each of these sample banks. The first sample bank is HSBC, one of the world’s largest banks. In South America, more than 710,000 people receive their salaries through HSBC and more than 40,000 corporate customers get benefited from the account receivable solution provided by the bank.
The number of electronic banking services users is approximately 90,000 and most of them are regular users of payment and cash management (PCM) service offered by the bank. More than 100 specialists are working incessantly to identify the requirements of the customers and to develop different PCM services (HSBC-a, 2010). The bank offers electronic and paperless payment solution that adds flexibility and better control to the customer’s business.
The electronic collection services of the bank assist the corporate customers to have a fast conversion of receivables to cash. Services like cash concentration and direct investment ensures a healthy short liquidity to businesses (HSBC-b, 2010). The recession has registered a change in treatment; the bank is focusing more on its Asian business as its US units are yet to recover from poor profitability and declining demand. Another bank is Bank of America Merrill Lynch. It is one of the best banks in America that succeeded in understanding the changing needs of the people and modifying the service portfolio offered by the company.
In the year 2009, Merrill Lynch was considered as the “Best cash management bank” by Treasury & Risk. The bank offers full range of treasury management solution that includes collection, concentration, investment and optimum retune on the liquidity managed by the companies. The receipt and payable management services offered by the bank is effective in minimizing the risk as well as the cost associated with this process. Dense network and long term experience of the bank in US can be considered as a major advantage for developing effective CMS.
The last sample company is Bank Leumi USA, which too offers cash management services to the customers. It offers ACH origination, cash concentration, lockbox services, positive pay, money transfer, along with other allied services (Bank Leumi USA, 2010). Comparatively small market share and moderate popularity of the bank are some of the major disadvantages of CMS offered by the bank. After considering the CMS portfolio offered by the bank, network density and the degree of customer satisfaction, it can be concluded that cash management services like lockbox, ACH and concentration of cash offered by Bank of America Merrill Lynch is one of the best in terms of efficiency and effectiveness.
The customer care department, which is responsible for CMS management of the bank, is quite experienced in understanding the requirement of the customers and developing innovative products. Reduction of opportunity cost in a health care organization with CMS Many well known organizations in US have several branches in different locations, making it problematic for managing cash (receivables and payable).
If the health care organization follows the tradition cash management process, it will take too long to collect the receivables and thus the cost of opportunity would increase. On the flip side, if they use the CMS offered by a bank, it becomes quite easy for the organization to minimize the time as well as the cost associated with cash management process. Apart from the traditional receivable and payable management; these organizations can use special services like zero balance account that minimize the amount of ideal cost that needs to be managed with the bank for each account.
Conclusion After analyzing the CMS offered by the sample companies, it can be concluded that all the banks offer more or less similar services but the quality of the services is what that makes the difference. While selecting the bank for availing its CMS facility, companies are required to pay more attention to branch network, efficiency of service offered, expertise of human force and ability of the management to understand the changing customer requirements. The above mentioned factors are also applicable in case of banks that aim to ensure sustainable growth by developing new services under CMS.
Reference Center for Financial Training. (2009). Banking Systems. Cengage Learning. HSBC-a (2010). Global Payments and Cash Management - South America. Retrieved on September 11, 2010 from http: //www. hsbcnet. com/transaction/global-payments-and-cash-management/south-america. HSBC-b. (2010). International Payments and Cash Management. Retrieved on September 11, 2010 from http: //www. us. hsbc. com/1/2/3/business/other/cash-management. Huang, W. (2007). Institutional banking for emerging markets: principles and practice. John Wiley and Sons.