Managing Cash Management: Six Reasons to Update Your Customer Agreements

Questions concerning cash management programs (sometimes called treasury management or depository services) are some of the most frequent to cross my desk these days. Some are spurred by outdated agreements, some by fraud incidents, and many by new or changing products and services. As both technology and customer expectations evolve, it naturally follows that cash management programs and agreements will need to evolve too. So, what are the most common themes of these questions and updates?

New Products – Many community banks are learning that keeping valuable commercial deposit customers now requires an expanded set of cash management products and services. Thanks to technological innovation and more accessible vendor offerings, many community banks are now rolling out programs more competitive with those of larger banks. With those new lockbox services, cash vault deliveries, mobile remote deposits, zero balance accounting setups, and fraud tools, comes the need for expanded and updated customer agreements. While it may seem easy to pull a sample agreement off the internet or use something off the shelf, failing to customize agreements to your bank’s operational and legal needs will almost certainly backfire.

Security Procedures and Fraud Prevention Tools – Legal, regulatory, and customer expectations for security procedures and fraud prevention tools have changed significantly in recent years. When was the last time your bank took a good look at the security procedures in your customer agreements? What enhanced options might be available through vendors? Have all your customers been converted over to current procedures and paperwork? And, most importantly, do your current internal procedures match up with your contractual security procedures? An ounce of prevention is worth a pound of cure, as the old adage goes, and never is this truer than when it comes to avoiding payments fraud.

Rules Changes – Rules, laws, and regulations impacting cash management do change from time to time, and some—like the NACHA Rules—change fairly frequently. Your auditors will probably catch any deficiencies in your agreements eventually, but why wait to respond to an audit finding (and have to report it to the board) when you can avoid it altogether? Further, some rules changes come with shifting fraud liability or penalties if not properly addressed in customer agreements.

Operational/Procedural Changes – This point is both internal and external. Internally, it is important to regularly take a step back and make sure the logistical and operational descriptions of cash management products in customer agreements still match what bank staff are doing in the background. Deadlines, submission instructions, contact information, and approval procedures all change over time—and sometimes so subtly that it escapes notice for a while. Externally, put yourself in the customer’s shoes and think step-by-step through the customer experience: do the contract descriptions align with how the customer will actually interact with the current products? The most impactful change here undoubtedly is the leveraging of online banking platforms to facilitate cash management programs. How much account setup and authorization information previously was collected on paper by bank staff but is now managed by the customer directly through online banking? Are ACH batches still submitted via secure email, or are they now collected through an online portal requiring login permissions? Can wire requests still be called in over the phone or must customers utilize the multi-factor authentication process through online banking? If these steps are not accurately reflected in your customer agreements, problems can arise in the event of fraud or other disputes.

Vendor Expectations – Have you signed a new contract or a renewal with the service provider behind your cash management products lately? If so, it is time to double check that any required elements or pass-through terms are included in your customer agreements. Many vendor contracts have these requirements, especially as it concerns liability and intellectual property.

Customer Experience – Many banks lately have inquired about moving from a suite of several separate cash management product agreements to a more straightforward master agreement with a corresponding set of terms and conditions. The reason? Customers prefer it. Customers are sick of excessive paperwork and a dozen required signatures, and as mentioned above, the shift to online banking has rendered some of that physical paperwork unnecessary. Honestly, a more streamlined set of agreements makes administering cash management programs easier for bankers too, cutting down on the labor associated with account setup and change management.

Often, the agreements that cross my desk have not been updated in five or more years, and frankly, that is too long. The factors described above now change too quickly and too often, so putting cash management agreements on a regular review schedule has become more than just a best practice. Good customer agreements are more than a legal necessity—they are a sign to both your regulators and your customers that the bank has its ducks in a row.