Companies don't have to be big to benefit from a reorganization of their overseas banking arrangements. That's evident from the experience of Day International Group Inc., a Dayton, Ohio, printing and textile industry supplier. After revamping its international banking structure, especially in Europe, Day not only reduced its bank fees, but also improved its internal controls by getting a better handle on its daily cash positions.
Day, which had sales of $277 million for the 12 months ended Sep. 30, has major European manufacturing operations in Germany, the Czech Republic and the U.K., and sales offices in France, Russia, Switzerland and Italy. Steve Skerl, Day's treasurer, says the company's overseas operations had grown fairly rapidly, primarily through a series of acquisitions. "When we acquired companies, we also inherited their banking arrangements," he says. In late 2000, "we realized that we needed to do something different."
Day's goals? Instead of a hodge-podge of banking arrangements, "we wanted to put everyone on an even keel, with one person in charge of European cash management, and provide that person the information necessary to control and minimize our cash balances by country," Skerl says. Day also wanted consistent pricing from its banks and the ability to pool its balances in Europe, instead of having cash sitting in various locations.
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With help from consultant Dale Sorenson, now with PricewaterhouseCoopers' treasury and risk advisory group, Day started by convening a meeting of its European controllers, who are responsible for cash management, to discuss their needs. Their input helped shape the RFP that Day submitted to five banks in the first quarter of 2001. By the third quarter of that year, Day's new European banking structure was up and running. The winning bank, Bank One, has a brick-and-mortar presence in the U.K., but operates in most of the other European countries in which Day is active through fellow members of banking alliance IBOS Association. For example, Day works with Hypovereinsbank in Germany and San Paolo Bank in Italy. Although different banks are involved, "we're able to move funds back and forth between operations as if they were part of the same organization," Skerl says.
Day set up pooling for its numerous U.K. and German operations. The U.K. businesses have two pools, one for pounds and one for euros, and the German operations have a euro pool. Day can easily transfer funds between the U.K. and Germany and from Europe back to the U.S. Skerl says that while balances in other European countries aren't big enough to pool, the banking arrangements now give Day visibility into those accounts. The company didn't set up cross-country pooling, in part because for the time being, any excess cash it has in Europe eventually flows to the U.S. to repay loans. Once that debt is paid off, Day might reconsider cross-country pooling, Skerl says.
Day's numbers show the success of its reorganization. It reduced its bank accounts to 17, down from 32, cut its banking relationships to seven banks from 16 and saved 40% on its European bank fees.
PwC's Sorenson says that companies can benefit from concentrating cash even if the funds they hold overseas total just $10 million to $25 million. He sees "a big opportunity for middle-market companies," given that a recent survey he conducted showed only a tenth of midsize companies are working on pooling or concentrating European cash, versus one- half of large corporates.
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