It’s a subject that never seems to get old: clearing the clutter of too many bank accounts.
A subject near, dear and necessary to any treasurer looking to keep his or her job is getting a handle on cash. Although technology advances over the years have helped treasury get a better a view of the company’s cash picture, it’s still a challenge. And where it’s often a sore point is when it comes to bank accounts and their slow growth over time.
Bank account creep can happen for a variety of reasons, from acquisitions to joint ventures to growing business in new regions. And like plaque, they can build up over time. At a recent NeuGroup Engineering & Construction Treasurers’ Peer Group meeting, members discussed the matter of managing bank accounts around the globe and within the context of multiple acquisitions. Here are a few takeaways:
- Reduce legal entities. This is a great place to begin in the effort to reduce bank accounts. Quite simply, the fewer entities you have the fewer bank accounts you need. This can be an ongoing struggle with the tax department, however, so a joint effort with tax, accompanied by a lot of thoughtful posturing, is needed.
- Dig in your heels. Two members have taken such a strong position against opening “project bank accounts,” which are opened at the time of a new construction venture, that they don’t even get requests anymore. However, the group agreed that there are countries in which a bank account is required by the government and therefore necessary. But a discipline should be in place to close those as soon as possible following the project. One member has a policy where he allows one bank account when a new legal entity represents the company in a new country. This is a result of “a renewed emphasis on limiting bank accounts,” he said. He added that treasury also has to prepare for the usual arguments and pressures from that new business, which often want more bank accounts, such as, “treasury is inhibiting our ability to do business here.” But these are idle claims that are often simply driven by a desire for clout in the community.
- Control the process. When there is a legitimate need for a new bank account, the process for determining the bank and opening the bank account should be fully controlled by treasury. However, it is often most expedient to leverage the physical presence and local knowledge of your people on the ground locally to actually get the account opened properly. But all this should be done under the careful supervision of treasury.
As always, optimizing the treasury processes, getting a good view of cash and revving up cash velocity is critical for treasury. Reducing bank accounts can help. And it really doesn’t matter what the company or global structure is, one thing all MNCs should have in common is the goal of paring bank accounts to a manageable number.