Posted By: David L. Peterson
What does it mean to be strategic? We often use that word, strategic, and most people have an idea what it means; something like “its really important to an entity or an outcome”. But try to describe an actual action that a company might take based on a relationship that was “strategic”. How could that outcome look different if a partner was strategic versus not?
Well for one, if you are a strategic partner, the other entity will fight to keep that relationship. In the context of a financial institution and a business customer, the business customer is strategic to the bank. Therefore, the bank will fight to keep that business customer. But let’s consider: what would it take for a business customer to fight for their bank? What kinds of services would a financial institution have to offer to be seen as strategic?
First, it is not likely one single product or service but the overall, cumulative services you offer that make the difference. Let’s face it, some product are just tactical. For example, your bank receives incoming checks, ach and wires for your business customers, accurately posts transactions to the DDA account and sends statement is substantially identical to every other FI in your market. Other than pricing, there is little that you can do that would differentiate your institution. So what type of product would be seen as strategic?
Integrated Receivables is a good example of a strategic product offering. It hits all of the strategic hot buttons, in that it:
1) addresses a growing business need
2) reduces internal costs (or make them money)
3) solves a mission-critical need for cash flow
4) catches the attention of C-Suite executives
5) creates a “sticky” treasury environment
Lets review each of these strategic hot buttons in a little more detail.
Strategic Services Address a Specific Business Need – Business face a real problem when the payments they receive are decoupled from the information necessary to accurately post to their accounting system. Today, the proliferation of electronic payments means more manual posting since the remittance data is often left off the payment or it is located in another system, like email. Every business that bills business customers has this problem. So when a bank’s calling officers or TMOs reference a solution to this issue, the relevant people at that business will pay attention. They know it’s a problem but will likely be surprised that the FI is the partner addressing it proactively. Go ahead … impress them.
Strategic Services Reduces Cost (or makes them money) – The increase in manual effort required to manually reconcile ACH payments to email remittance documents as a real impact on internal processing cost. In addition, staff are burdened with increasing repetitive and unproductive tasks, instead of engaging in more rewarding business activities. When the FI provides the business a solution to this growing problem, the reduction in direct expense is immediately recognized by the business customers.
Strategic Services are Mission Critical to the Customer – Accounts receivable is the lifeblood of any business. No recording of accounts receivable - no income. While it is unlikely accounts receivables will be the subject of polite dinner conversation or discussed during party chitchat, it is, nonetheless, mission-critical for the business. When the bank brings a solution to address the manual posting of accounts receivable, it becomes a strategic discussion.
Strategic Services are of Interest to the C-Suite – C-Suite executives, are time challenged individuals. They hire a team of capable employees to make sure that all departments of their organization are organized and well run. So it is unlikely that a company CEO is intimately aware of what occurs in the back office related to posting accounts receivables. The CEO will absolutely look at the bottom line. If income is not properly posted, or if accounting costs are rising due to the increased manual effort needed to post accounts receivable, the CEO will notice.
Strategic Services are Sticky for the Business Customer – If you still need more evidence of the strategic nature of integrated receivables, consider this point: Integrated Receivables is a “sticky” service. Once you are integrated into the business’ accounting system, it is unlikely that they would unwind all that for a few basis points on a line of credit. Financial institutions should be looking for sticky services, especially those that are strategic, and getting as many business customers as they can, using these strategic services.
Are you looking to implement strategic services for your business customers? If not, why not? On July 23rd at 12:00 noon EST, I will conduct a free webinar that addresses in detail this issue of using Integrated Receivables as a strategic service for business customers. You are invited to join us and earn valuable CPE credits. I welcome hearing your questions and comments during the open Q&A period of that webinar.