Guides
Part of Cash management is a build order, not a single product
Cash management services: four tests to run before you sign
Four tests for any cash management service before signing: a sample export in your software, the default when nobody answers, the failure days, who approves.
A cash management service is a bundle of mechanisms, and a brochure shows each one on a good day. The decision is safer when you test it on a bad one. A sample file, an unanswered exception and a careful read of the agreement tell you more than a feature list.
Run four tests, in the order that wastes least time: the data, the defaults, the failure days and the approvals. Each can be done before you sign, with material the institution can hand over now. No institution is named here and no charge is quoted.
What to take away
- Test only the mechanisms your business will switch on. A service with seven features you will not use is not better than one with the two you will.
- Test the data first. If the service cannot get information into your ledger cleanly, nothing else about it matters.
- Every mechanism has a default for when nobody answers. Find it before you sign.
- The right service is the one whose failure modes you have read and can live with.
Test only what your business will switch on
Activity decides the list, because each mechanism you add brings another agreement to read and another failure to survive. Payments, checks, payroll files, paper receipts and idle balances each call for a different mechanism.
A business with a handful of payments a month and no checks needs reporting and controls, and probably nothing else.
One that writes checks needs positive pay. One that sends payroll and supplier files needs origination and the exposure that comes with it. Buying the full bundle at the small end costs money and attention for mechanisms that have nothing to do.
Match mechanism to business size
Few payments, no checks?
reporting and controls only
continue
Mechanisms and what to ask
Sweep
- What it does
- Moves excess balance
- Key question
- What triggers it
- Failure to ask
- Sweep silently skipped
Zero-balance
- What it does
- Funds only when items post
- Key question
- How many allowed
- Failure to ask
- Master short on debit
Positive pay
- What it does
- Pays only matched items
- Key question
- File format and cut-off
- Failure to ask
- Unanswered exception default
Origination
- What it does
- Sends batch payment files
- Key question
- Formats and cut-offs
- Failure to ask
- File returned after payout
A business with balances large enough that their idle cost matters needs a sweep, with a destination chosen for access and for how the insurer treats the titling. FDIC deposit insurance covers $250,000 per depositor, per FDIC-insured bank, for each account ownership category, and insured credit unions have their own insurer, the NCUA.
Decide what the idle money is for before it moves. Naming the money comes first.
Test one: open a sample export in your own software
Ask for a sample export in each format offered and open it in your own accounting software. Reporting delivers balances and transactions to you or to your software, so it is the mechanism to test first, before any other feature is looked at.
- Check that a payment with several deductions arrives as several lines.
- Check that a sweep appears as a transfer between two accounts you can both see.
- Check that a positive pay exception, a returned item and a reversed sweep each show up in a way you could explain to your accountant.
Test the sample export
- Open sample in your accounting software
- Payment with deductions arrives as lines
- Sweep appears as transfer between accounts
- Exception, return, reversal each explainable
- If sample fails, service fails monthly
Ask also whether delivery is intraday or end of day, what formats are offered and whether there is a direct connection your accounting system supports. If the sample fails these checks, the service will fail them every month, and the hours you spend rekeying are the real cost of it.
Test two: find the default when nobody answers
Every mechanism has a default, and the default is where the failure sits. Ask what the service does when you say nothing, miss a cut-off or leave a destination unable to accept.
With positive pay you send a file of issued items, and the institution pays only what matches and refers the rest to you. Ask the file format, the cut-off, how exceptions are presented, how long you have to decide and what happens if you do not answer. Find out whether an unanswered exception is paid or returned.
A sweep moves balances above a target to another account on a rule, usually daily. Ask what triggers it, whether you can change the target yourself, what happens if the destination cannot accept and whether it can sweep back when the operating account is short. A sweep that only runs one way is half a mechanism.
A zero-balance account is funded from a master account only when items post to it, so it holds nothing overnight. Ask how many you can have, whether each can carry its own reporting and what happens to a debit that arrives when the master is short.
Origination means sending batch files that pay suppliers and staff, or collect from customers. Ask about file formats, cut-offs by payment type, payment limits and how they are raised, prenotification handling and how returns are reported back. Then ask for the origination agreement, because it defines your exposure and theirs.
The Federal Reserve Banks operate an automated clearinghouse service among the payment services they provide to institutions. It is one of the networks that move these files.
Remote and lockbox deposit get paper receipts into the account without a counter. Ask about image limits, availability of imaged funds and what happens to a duplicate. For lockbox, ask what the remittance data feed contains and whether your ledger can match it.
Test three: read the agreement for the bad day
Every mechanism has a day when it does not work as expected. The agreements say what happens, so read them for exactly that and mark every line you could not live with.
Failure modes by mechanism
Mechanism
- Sweep
- Destination cannot accept
- Zero-balance
- Master short on debit
- Positive pay
- Exception not answered
- Origination
- File returned after payout
- Remote deposit
- Duplicate image
- Reporting
- Connection down on reconciliation
- Controls
- Sole approver unavailable
Failure to ask about
- Sweep
- Zero-balance
- Positive pay
- Origination
- Remote deposit
- Reporting
- Controls
| Mechanism | The failure to ask about |
|---|---|
| Sweep | Destination cannot accept; operating account short; sweep silently skipped |
| Zero-balance | Master account short when a sub-account debit arrives |
| Positive pay | Exception not answered by the deadline |
| Origination | File returned after payout; limit exceeded; service suspended |
| Remote deposit | Duplicate image; item later returned |
| Reporting | Connection down on reconciliation day; format changed without notice |
| Controls | Sole approver unavailable; departed user still active |
A service whose failure modes you have read and can live with is a better choice than one with a longer feature list and agreements you have not opened.
Test four: who can approve what
Access controls cover users, roles, limits and approvals, and they decide who can move money on a bad day. Ask whether creating a payee and approving a payment can be separated, and how a departed employee's access is removed.
Ask also whether limits apply per user and per day, and whether approvals can be required above an amount you set. The account file that sets these controls up is described under what account opening requires.
Seven questions to put to the institution
- Which of these mechanisms do you offer on a business account, and which require a separate agreement?
- Can I have a sample of each export format now?
- What is the default outcome for a positive pay exception I do not answer?
- What is the origination exposure limit you would set for us, and how is it reviewed?
- Can payee creation and payment approval be separated between users?
- What notice do you give before suspending a service?
- Who do I call when the connection is down on a reconciliation day, and in what hours?
Write the answers down. A service that cannot answer the third and sixth questions has not told you what it does on its worst day.
Seven questions to ask
- Which mechanisms, which need separate agreement
- Sample of each export format now
- Default for unanswered positive pay exception
- Origination exposure limit and review
- Separate payee creation and approval
- Notice before suspending a service
- Who to call when connection is down
About rankings
Lists of "best" treasury services compare feature counts and, sometimes, pricing on a made-up profile. Neither tells you whether the export opens in your software or what happens to an unanswered exception.
Use lists to learn what exists, and make the decision on the sample file and the agreements.
Common questions
Is a large institution always better for treasury services?
It usually has more mechanisms and deeper automation. Whether that helps depends on whether you need them, and on whether a person answers when the connection is down.
Can I get these mechanisms without moving my main account?
Sometimes, since a second institution can run origination or sweeps for you. Keeping two relationships also gives you a fallback. The plain account these mechanisms sit on is described under business checking.
How do I know if I am paying for mechanisms I do not use?
Read the monthly service charges line by line against the mechanisms you switched on and mark each one you used last month. Cancel the rest, and total what remains using the grouping on the banking fees page.
