Pub. 9 2018 Issue 1

Spring 2018 29 West Virginia Banker Patrick Goodwin, President, Strategic Resource Management, can be reached via email @ pgoodwin@ srmcorp.com or by phone at 901-681-0204 to run rate can allow small errors to creep in and become big errors over time. How Small Oversights Become Big Numbers A case in point, one financial institution (FI) asked our com- pany to explore why it wasn’t realizing the expected savings from a recent vendor contract agreement. We found a line item charge on the invoice that was not accounted for in the contract. With a bit more digging, we discovered an FI employee had submitted a work order without understand- ing the full effect of the request. The result was an additional charge of 2 cents per transaction applied to a rapidly growing base of business that soon amounted to $60,000 per month. Fortunately, we were able to negotiate the required addi- tional service for a fraction of the cost and recoup much of the incremental spend. The vendor was not at fault nor was a billing error involved. The FI, in this case, most likely had oth- er priorities vying for attention, limiting the amount of time required to do the necessary due diligence on the vendor’s work order and subsequent invoice. A Guide for When to Take a Closer Look Card processing invoices are prime candidates for savings opportunities skirting by undetected. Interchange revenue has been on a steady upward trend thanks to transac- tion growth. Therefore, it stands to reason that costs are rising as well. If costs rise too rapidly, however, your FI can encounter margin compression and things can get out of whack in a hurry. Take a close look to confirm your interchange revenues are growing faster than processing costs. If they aren’t, a deep- er dive is in order. Following the initial shock of the Durbin Amendment, interchange rates have remained fairly steady. With the exception of PIN network selection, FIs have far more ability to control card expenses than to influence interchange An FI experiencing solid growth can reasonably expect a break on per transaction rates, and it’s important to under- stand when such a threshold is crossed. The implementation of EMV (chip card) processing may have triggered a new line item on your processor bill, if the fee had not been negoti- ated previously. Consumer Price Index adjustments similarly deserve close attention. How Much Micromanagement Can You Afford? Want to make sure that small errors aren’t multiplying into large numbers? The surefire approach is the old-fashioned one: check every bill every month, line item by line item, against the terms of the vendor contract. For most FIs such a level of diligence is not feasible in today’s environment. I once visited a credit union where I found three sets of sign- off initials on every invoice – a truly impressive commitment to detail, but likely an unsustainable model for a growing organization. Fortunately, software is now available (including SRM’s TAB product – for tracking, auditing and benchmark- ing) to automate the clerical aspects of this process and flag the resulting opportunities for action. The cost of automating this effort is minimal when you con- sider the cost associated with undiscovered errors in billing that can reach seven figures. If you can automate the tracking and auditing of invoices plus receive information as to when a vendor contract is “out of market” then the return can even be greater. 