Relationship Management

1
Relationship Management

• Chapter 16

2
Strategize

• The objectives of relationship management
• How companies select and evaluate financial
  institutions and other service providers
• What an account analysis statement is and how it
  is used in relationship management
• How to perform collected balance and earnings
  credit calculations
• The options for compensating financial
  institutions

3
Strategize

• Learn how to calculate/prepare/interpret the
  following
• Earnings credit calculation
• Collected balances required calculation

4
Define 1

• A paper or electronic report a bank provides to
  its commercial customers specifying services
  provided, volumes processed and charges assessed.
  It is essentially an invoice for services,
  provided along with detailed information on
  balances and credit earned for those balances.

account analysis statement
5
Define 2

• The sum of the daily dollar amount of items in
  the process of collection divided by the number
  of days in the analysis period.

average deposit balance
6
Define 3

• The sum of the daily ending ledger balances
  (both positive and negative) divided by the
  number of days in the analysis period. Balances
  are net of current period adjustments.

average ledger balance
7
Define 4

• The total credit that can be used to offset
  service charges incurred the period.

earnings credit
8
Define 5

• The rate used to calculate the earnings credit.

earnings credit rate
9
Define 6

• The balance on which the earnings credit rate
  rate is applied.

investable balance
10
Define 7

• The foregone return of available investment
  alternatives.

opportunity cost
11
Define 8

• A formal document prepared by a company that
  outlines its objectives and service requirements.
  It can be used to obtain bids for everything
  ranging from one particular service to a
  companys entire relationship.

Request For Proposal (RFP)
12
Describe 1

• Describe eleven types of information requested in
  a typical RFP.

• Background information
• Objectives to be met
• Summary of the proposed solution
• Service descriptions
• Service features benefits
• The providers commitment

• Price schedule and cost/benefit analysis
• Pro-forma account analysis statement
• Sample service agreements
• Timetable for service implementation
• Customer references

13
Describe 2

• Describe eight common terms used in account
  analysis statements.

• Reserve requirement balances
• Earnings credit rate
• Investable balance

• Service charges

• Earnings credit
• Average ledger balance

• Average collected balance

• Average deposit float

14
Earnings Credit Calculation (1)

• The level of earnings credit can be determined by
  multiplying the collected balances (adjusted for
  deposit float and reserve requirements) by the
  earnings credit rate for the period.

Example Average ledger balance 498,300 Deposi
t float 85,500 Reserve requirement
10 Earnings credit rate
5.5 Service charges for the
month 2,500 Days in month
30
15
Earnings Credit Calculation (1)
Average Collected Balance CalculationAverage
ledger balance 498,300Less deposit
float (
85,500)Equals average collected balance
412,800
16
Earnings Credit Calculation (1)

• If the current service charges are 2,500, but
  the amount of earnings credit is only 1,679.46,
  the company did not keep sufficient collected
  balances on deposit to cover the cost of services
  over the period.
• In effect, the company has a compensation deficit
  of 1,679.46 - 2,500 (820.54), which is owed
  to the financial institution.

17
Collected Balance Required (2)

• The level of collected balances required can be
  computed as a function of monthly service charges
  and the earnings credit rate, adjusted for
  reserve requirements.

Example Service charges, fees, or
costs 3,750 Earnings credit rate
4.75 Reserve requirement 10 Days in
month 31 What is the balance multiplier
and the average collected balance required to
compensate the financial institution for the
3,750 in service charges?
18
Collected Balance Required (2)
19
Collected Balance Required (2)