As U.S. businesses continue to experience mounting pressure from the credit crunch, facing escalating costs while fighting to keep their companies liquid, the critical role of financial executives is once again in the spotlight. This article looks at the basic steps companies can take to simplify their business operations, reduce risk, optimize performance and improve the bottom line.
   Throughout the last 18 months, businesses have endured the most tumultuous market conditions in recent history. In fact, we are in the midst of the first global recession since World War II, sparked by poor consumer sales and an increasingly weak domestic market, along with rocketing resource and food prices. In the last few months alone, we have witnessed substantial lay-offs across virtually all industry sectors, worrying downturns in key industries and profit warnings and financial losses from even the most traditionally robust firms.
   This situation has fueled unprecedented U.S. government spending in an effort to reverse the trend. A $787 billion dollar economic stimulus package was approved earlier this year, the largest in U.S. history, and the Federal Reserve and Treasury Department have launched a series of multi-trillion-dollar programs to help revive the financial and automotive sectors.
   Put simply, the credit crunch is starting to bite, and with the economic decline showing no signs of abating, companies are under significant pressure to achieve more with less. This is by no means an easy challenge. However, there are several things that corporate financial executives can proactively do to remove complexity, reduce risk and, perhaps most importantly, save time and money.

Corporations Need to Take the Initiative
   With U.S. banks remaining in the spotlight amid this financial crisis, companies may not be aware of how to get what they need out of their banks to remain efficient, and I suspect their banks are not letting them know of new cash management and transaction programs available.
   Corporate financial executives have a real opportunity to streamline processes and reduce operational costs and shouldn't wait for their banks to take the initiative. Instead, companies must do more to engage with their banks in order to determine how serious they are about payment processing.
   Now, more than ever, companies should sit down with their various bank partners and have a frank conversation about their needs, in order to ensure that they are getting the best products and services being offered.
   In fact, in this time of economic unrest, truly savvy financial executives won't just ask for added value and better functionality from their banks, they'll demand it. They'll seek out the banks that can offer strategic services, such as discount management, to help streamline their business operations. They won't think twice about moving their business if clear benefits are being offered elsewhere.

Reducing Errors to Eliminate Costs
   Most large companies have multiple banking relationships, connectivity protocols, file formats and back office systems to manage, and any difficulty in processing payments as a result of information errors can cause significant and extremely costly delays. Not surprisingly then, corporate finance departments are increasingly focused on improving efficiency and achieving improved payment straight through processing (STP) rates.
   However, many companies are still paying substantial repair fees as a result of processing transactions with incorrect payment information. In some cases, repair fees can cost upwards of $25 per rejected payment. Furthermore, companies may also be faced with additional interest costs, if the beneficiary does not receive the funds on time.
   With businesses across the U.S., and indeed around the world, tightening their purse strings, these fees are simply unacceptable. Corporate finance executives have a serious responsibility to reduce these unnecessary costs.

   To do so, companies need access to accurate information at the point-of-payment origination — ABA routing numbers and account numbers, which can be researched and validated before they are issued to the bank. For international payments, collecting all of the necessary information such as SWIFT / BICs, Local Clearing Codes, IBANs and CHIPS UIDs from multiple sources all around the world is a formidable task in which companies continue to invest significant time and financial resource.
   Given the challenge and cost of collecting and maintaining this important information, it's not surprising that finance departments frequently issue payments with incorrect or incomplete data instructions. However, there are solutions available to companies which provide all the necessary global bank data to facilitate the routing of both domestic and global payment transactions.
   By deploying these high quality, integrated payment solutions either as standalone solutions or integrated within their ERP systems, companies can save considerable costs; not only by reducing errors and repair fees but also by removing the hefty burden of excess processing and manual transaction handling.

Reducing Bank Costs with Better Information
   What can accurate bank routing details mean in terms of savings? Let's take a simple example with some particularly modest numbers:
   A company creates 100 payments per day. With about 260 business days per year, the annual payment volume for the company is:

100 x 260 = 26,000 payments per year

The company currently experiences a payment STP rate of 85 percent. So, the total number of payment errors is:

(1-.85) x 26,000 = 3,900 payment errors per year

If the fee levied against an incorrect payment is $25, the total annual cost attributed to non-STP payments is:

25 x 3,900 = $97,500 spent on payment errors each year

Incorporating accurate bank routing information into the company's payment system increases the firm's payment STP rate to 95 percent. This decreases the number of payments containing errors by:

3,900 —((1-.95) x 26,000) = 2,600 fewer errors per year

Again, at $25 per non-STP payment, this represents a savings of:

25 x 2,600 = $65,000 saved each year

   Many firms have far larger daily payment obligations, but it's easy to get the idea. This example doesn't begin to take into account the cost of building and maintaining an entity's own database of payment information either. Such a database changes daily and maintenance can be incrementally burdensome.

Assessing Your Health
   As external pressures from the credit crunch increase, and compliance and governance requirements necessitate better internal controls, corporate financial executives need greater cash management visibility as well as insight into cash positions and forecasts. This can only be achieved when finance departments have access to the appropriate technology, and when that technology is used effectively.
   The payments and cash management tools within most businesses are based on legacy systems that have evolved in an ad-hoc, piecemeal fashion in response to changing business needs and emerging regulatory demands. As a result, many companies are now working with unintegrated and unnecessarily complex transactional and financial management solutions, which increase operational costs.
   Therefore, companies should also consider reviewing their existing systems and procedures to ensure that they are getting the most value out of their existing technology, in order to get a good return on investment.
   Many financial services technology providers will offer consulting and audit services to assess the "health" of corporate systems and processes, and provide recommendations on how businesses can make easy yet marked improvements. Reputable vendors will offer this service on an agnostic basis, rather than just to their existing customers.
   By allowing external experts to access their current systems, data repositories and processes, corporations can improve workflow efficiency, customer due diligence, risk mitigation and STP— all necessary to successfully manage the impact of the credit crunch.
   In many cases, companies already have the required technology in place but are not utilizing it in the most effective manner to drive down operational costs and maximize their investments. By undertaking a health check, companies can be alerted to the often simple changes that can be made to rectify the situation.
   As well as offering regular "health checks," many technology partners will also provide comprehensive training and support for treasurers in compliance regulations, technology and payment processes.
   Some companies look to their banks for this type of service. However, as banks continue to focus on their own challenges presented by increased regulation and the credit crunch, it is not always possible for them to assist their corporate customers in this way. After all, the fees generated by broken payments are particularly valuable to many in the banking community.
   Corporate financial executives know better than anyone — you can't wait for something to go wrong before making changes. It is critical to have clear visibility into your business at all times in order to be able to respond immediately to any threats. The same is true of technology and the data that feeds it, which is why companies should seriously consider bringing in the experts to review their systems on a regular basis to ensure that their processes, databases and books are in order and up-to-date.
   With consumer confidence now at an all-time low, inflation fears continuing to intensify and costs rising, executives are under more pressure than ever to drive down costs, remove complexities and reduce risk. This can be achieved, at least in part, if companies are prepared to demand the best from their banks, their technology and their processes.
   While the immediate future might seem bleak, with the right approach, I am confident that financial executives can position themselves to successfully overcome the challenges ahead.

Hugh Jones is president of Accuity and NRS and currently leads these global businesses.
He can be reached via email at hugh.jones@accuitysolutions.com.