Bank Fee Consulting: What Companies Should Know About Commercial Banking Fees

Commercial banking fees are one of the few significant corporate expenses that can continue month after month without going through a traditional invoice approval process.

Treasury management charges are typically reflected on an account analysis statement and ultimately settled through the banking relationship. For many organizations, if the total amount looks relatively consistent from one month to the next, there may be little reason to question it.

But there is an important distinction:

Consistent pricing does not necessarily mean competitive pricing.

Throughout my more than 20 years in commercial banking, I saw organizations with similar treasury needs paying very different prices for comparable services.

It was not necessarily because one organization had a better bank. Often, one organization had negotiated its pricing while another had not.

That information gap is one of the reasons bank fee consulting and treasury fee benchmarking can be valuable.

What Is Bank Fee Consulting?

Bank fee consulting is an independent evaluation of an organization's commercial banking fees, treasury services, pricing, and overall banking economics to determine whether the company is receiving competitive market value.

A comprehensive review may include:

• Account analysis fees
• ACH and electronic payment pricing
• Wire fees
• Information reporting
• Fraud prevention services
• Lockbox
• Remote deposit
• Account maintenance
• Treasury technology and integrations
• Earnings Credit Rate (ECR)
• Deposit yields
• Commercial card rebates
• Merchant processing costs

But effective bank fee consulting should not simply ask:

"Can we reduce these fees?"

It should ask:

"Is the entire banking relationship optimized?"

Those are two very different questions.

Are Commercial Banking Fees Negotiable?

One of the biggest misconceptions I encountered during my banking career was that treasury pricing was essentially fixed.

It isn't always.

Banks generally have established pricing for treasury services. But depending on the relationship, individual services may have varying levels of pricing flexibility.

Factors such as the overall banking relationship, deposit balances, credit facilities, transaction volumes, competitive dynamics, and other business the organization maintains with the bank can influence the pricing conversation.

The challenge is that companies often do not know where that flexibility exists.

From my experience inside banking, meaningful treasury pricing negotiations were relatively uncommon. Clients might ask their bank to review their pricing, and a conversation might occur. But without a specific benchmark or objective, the discussion could easily stop there.

There is an important difference between asking for a discount and negotiating based on market intelligence.

Asking for a discount isn't a pricing strategy.

Why Treasury Fee Benchmarking Matters

Imagine your organization is paying $20,000 per month in treasury management fees.

You ask your bank for a 10% reduction.

The bank agrees.

That represents $24,000 in annual savings.

Sounds great.

But how do you know 10% was the right reduction?

What if comparable organizations are receiving pricing that is 25% lower? What if certain electronic services are significantly above market? What if you are paying for services your organization no longer uses?

Without independent treasury fee benchmarking, it can be difficult to answer those questions.

The more important question is not simply:

"Will my bank negotiate?"

It is:

"Do I know what I should be negotiating?"

Start With the Account Analysis Statement

One of the first places to begin a bank fee review is the account analysis statement.

At TreasurySavvy, we do not simply look at the total monthly charge. We look at the relationship section by section.

Where are the majority of fees being generated? Which accounts are driving them? Which services have the highest volumes? How are ACH and electronic payments priced? What is the organization paying for fraud protection and information reporting? Are there legacy services that may no longer be necessary? Are integrations structured efficiently?

Then we look at the individual line items.

The objective is not simply to find expensive services. It is to understand why the organization is paying for them in the first place.

Sometimes the best outcome is not negotiating a lower price.

It is eliminating an unnecessary expense altogether.

Working and Optimized Are Two Different Things

Treasury teams typically operate lean.

They are responsible for ensuring payments go out, receivables come in, liquidity is available, fraud controls operate properly, and the business has access to the cash it needs.

Add acquisitions, ERP implementations, international expansion, technology projects, new payment initiatives, and banking projects, and reviewing bank pricing can understandably move down the priority list.

As long as everything works, the relationship continues.

But:

Working and optimized are two very different things.

A treasury operation can function perfectly well while the organization pays above-market fees, maintains unnecessary services, receives an uncompetitive Earnings Credit Rate, or leaves excess liquidity in a structure that no longer makes economic sense.

That is not a failure of the treasury team.

It is often a question of bandwidth and access to specialized market intelligence.

Bank Fees Are Only Part of the Equation

One of the biggest mistakes organizations can make is evaluating bank fees in isolation.

Suppose a company negotiates $50,000 in annual fee savings.

That is valuable.

But what if the same company maintains $20 million in operating liquidity and could improve its yield by 50 basis points?

That represents another $100,000 annually.

This is why a comprehensive treasury review should consider the broader economics of the banking relationship, including:

Fees + ECR + Deposit Yield + Rebates + Merchant Costs + Treasury Structure

The objective should be to determine whether the organization is maximizing the value of the entire banking relationship.

ECR vs. Interest: Is Your Cash Working Hard Enough?

Many organizations maintain operating balances to generate Earnings Credit Rate credits that offset treasury fees.

That can be an appropriate strategy.

But it should not automatically be the strategy.

Organizations should periodically ask:

Would it make more economic sense to negotiate our treasury fees lower, pay those reduced fees directly, and move additional operating balances into an appropriate interest-bearing solution?

The answer depends on the organization, its liquidity needs, investment policy, risk parameters, accounting and tax considerations, and available alternatives.

The point is not that one structure is always better.

The point is that the structure should be intentional.

Every dollar of liquidity should have a purpose.

Do You Need to Change Banks to Get Better Pricing?

Usually, no.

At TreasurySavvy, our philosophy is:

Optimization before disruption.

Changing banks can require significant time and resources.

Accounts need to be opened. Systems may need to be integrated. Payment instructions change. Fraud controls need to be established. Employees require access and training. Vendors and customers may need updated information.

If the existing banking relationship is fundamentally strong, better pricing alone may not justify that disruption.

Instead, first determine whether the current relationship can be improved.

Can pricing be renegotiated? Can rates be improved? Can unnecessary services be eliminated? Can the account structure be simplified? Can the banking team provide better support?

If the answer is yes, the company may be able to capture significant value without changing financial institutions.

If the relationship no longer supports the organization's needs, then evaluating alternative banking partners may make sense.

What Does an Independent Bank Fee Consultant Do?

A bank provides advice through the lens of its own products, capabilities, and institution.

That is understandable.

An independent treasury advisor has a different role.

The advisor sits on the client's side of the table and helps evaluate questions such as:

• Are we receiving fair market pricing?
• Are our rates competitive?
• Is our liquidity positioned appropriately?
• Are we using the right treasury services?
• Are we paying for services we no longer need?
• Are our banking partners supporting where the business is going?
• Are there opportunities to improve efficiency?
• Should we optimize our existing relationship or evaluate alternatives?

The goal is not to create an adversarial relationship with the bank.

Quite the opposite.

Better information can lead to better conversations and ultimately stronger banking relationships.

How Often Should Companies Review Treasury Bank Fees?

There is no single schedule appropriate for every organization, but treasury pricing and banking economics should be reviewed periodically rather than left indefinitely.

A review can become particularly important following:

• Significant company growth
• An acquisition
• A change in banking relationships
• A major change in operating balances
• New treasury services
• ERP or technology implementations
• Leadership changes
• Significant interest-rate changes
• Several years without a comprehensive pricing review

And the review should not stop with fees.

Pricing, ECR, deposit yield, commercial card economics, merchant services, account structure, and treasury technology should all be considered.

Frequently Asked Questions

What is bank fee consulting?

Bank fee consulting is the independent evaluation of commercial banking fees, treasury pricing, and related banking economics to determine whether an organization is receiving competitive market value and identify opportunities for optimization.

Are treasury management fees negotiable?

Many commercial treasury fees can potentially be negotiated depending on the banking relationship, transaction volumes, balances, credit relationship, and other factors. Pricing flexibility varies by service and financial institution.

What is treasury fee benchmarking?

Treasury fee benchmarking compares an organization's existing treasury service pricing with relevant market information to identify areas where pricing may be above or below competitive levels.

Do I need to change banks to lower my treasury fees?

Not necessarily. Companies may be able to negotiate improved pricing with their existing financial institution without changing banks.

What is an Earnings Credit Rate?

An Earnings Credit Rate, or ECR, is a rate banks use to calculate earnings credits on eligible balances that can be used to offset qualifying treasury service charges.

Why use an independent treasury advisor?

An independent treasury advisor can provide benchmarking, market intelligence, banking expertise, and an objective perspective that is not tied to a specific financial institution or product.

The Bottom Line

Commercial banking relationships should not operate on autopilot.

Pricing changes. Interest rates change. Technology changes. Organizations grow. Treasury evolves.

Periodically evaluating the relationship gives CFOs and treasury teams the information they need to determine whether they are receiving competitive value and whether opportunities exist to improve performance.

At TreasurySavvy, we believe:

Benchmark before you negotiate. Optimize before you disrupt.

Because the objective is not simply to pay less.

It is to make better treasury decisions.

About TreasurySavvy

TreasurySavvy provides independent treasury advisory, bank fee consulting, treasury benchmarking, liquidity optimization, and banking relationship advisory to CFOs and finance leaders.

We bring banking experience and independent market intelligence to the client's side of the table, helping organizations understand what they are paying, what they are earning, and where opportunities may exist to optimize their treasury relationships.

Is Your Banking Relationship Optimized?

If you have not recently benchmarked your treasury pricing, Earnings Credit Rate, deposit yields, or overall banking economics, TreasurySavvy can provide an independent assessment of where you stand and where opportunities may exist.

Contact TreasurySavvy to learn more.

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