How to Stop Your Cash Distribution Costs from Rising Through Optimization

Cash distribution for a bank is a huge cost. A recent McKinsey & Company study1 suggests that 5 to 10 percent of a retail bank's operating expenses are related to the cash distribution network. 

5 to 10 percent? That's big.

Those numbers need to come down, but we need to keep serving the customers. Getting cash to customers is fundamental to retail banking. The challenge is, how do we do it? 

Banks are renegotiating contracts with their CIT providers. They're focusing on improving forecasting, too, by employing artificial intelligence and other tools. Yet those cash distribution costs remain stubbornly high.

The recent unexpected impact of the COVID-19 crisis creates greater urgency to reduce costs and improve agility rapidly and securely.

An End to Your Bank's Cash Data Lags and Silos

When we started looking at this problem at Perativ, we began with a focus on cash forecasting. That's where most people start, after all. But no matter how much we improved our forecasting it wasn't enough.

That's when we realized that forecasting is a silo within a business. It operates within the business and works to do its best to forecast the cash, but it does so in isolation. And, we discovered there are two other silos, and that all three work together to unwittingly keep cash costs high.

If forecasting is the first silo, then the second is in accounting. Their job is to reconcile all the cash that goes out and comes in every day. They use traditional accounting timeframes of days or a week or two, and so long as it balances, that's excellent.

The third silo is in treasury. They track the cash in the entire cash cycle. Again, this traditionally takes days or weeks, and as long as the money's there, they're doing a great job.

What we realized is that we could think about these silos more like players on a sports team.  Having each player/silo do a good job is great, but it’s not enough.  Unless the players/silos are coordinated as a team, aligned with the same goal and driven to succeed together, you will not have a winning team, and you will not get breakthrough improvements in cash distribution.  

When we started to think like that about cash within our own company and started to integrate and automate the processes and systems between these three silos—forecasting, accounting, and treasury—we eliminated the data lags. Now, the forecasting team has close to real-time data from accounting and treasury, which informs their decisions and dramatically improves their confidence levels around cash forecasts and amounts of cash to order.

Our results with this cash optimization software speak for themselves. We drove down our cash float down by 42 percent2, while still satisfying every customer that needed cash. [Read the full case study].

Want to know how Perativ can help cut your cash costs while still servicing the customers who need it? Talk to us today.


1McKinsey & Company Study: https://www.mckinsey.com/industries/financial-services/our-insights/attacking-the-cost-of-cash

2 Perativ Case Study: https://perativ.com/web/default/files/Files/Case-Study/Perativ%20Case%20Study%20Access%20Cash%20WEB.pdf

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