Commercial customers often assume a community bank cannot offer the cash management services that are touted by the national or regional giants.

Also, many community bankers feel it takes an enormous amount of capital and staff time to establish and offer these rewarding fee-based services. In those cases, the community bank transfers these fees, and relationships, to its competitor.

Positioned to Compete

My institution, State Bank and Trust Co. in San Marcos, Tex., is an independent community bank with assets of approximately $100 million.

It has established systems and procedures that allow it to offer a wide variety of cash management services and recoup income previously transferred to a large, regional corespondent.

This has positioned the bank to be more competitive with larger banks and build stronger ties with its customers.

Most community banks already have the systems or resources to provide many of the services regarded as cash management. However, they haven't considered it possible to offer cash management because of its perceived sophistication.

Many of these services, such as balance reporting, can easily be implemented and may require only an exchange of phone calls between the bank and its corporate customers, or a fax transmission, or a download of a statement file.

The bank simply needs to establish some procedures and develop a marketing plan that coordinates the existing delivery methods into a cash management package.

ACH Origination

One key service, a must for a cash management program, is ACH origination. ACH is the term generally used to describe fund transfers performed by electronic means instead of paper, such as Social Security direct deposits.

Due to its specialization, technical nature, and unique risks, ACH may require some investment in addition to having the Fedline system.

ACH origination may be one of the least understood services associated with cash management - and among the most profitable.

Although ACH does have a degree of risk, once the risk factors are understood, they are only slightly different from the risks associated with handling cash letters, ATMs, wire transfers, payrolls, or other transactions considered routine.

Immediate Money-Maker

In January, State Bank installed a popular PC-based system, Maxx-ACH, from Maxxus Inc. in San Francisco. Within a month the bank had converted two of its customers from its correspondent ACH program.

We were able to show a profit from the outset, and all new customers installed since that time have been icing on the cake. Nearly a dozen customers are routinely using the service, and several large government employers are expected to sign up within the next year.

Even with a small number of clients, State Bank is now in a position to offer all the ACH services formerly offered only by big banks. And in many instances our commercial customers pay less.

ACH is ideally suited for direct-deposit organizations, depository transfers, monthly drafts, tax payments, and. other commercial transactions.

As for fee income, a simple payroll or depository transfer service averages $35 to $75 per month in fees, with almost no effort or cost to the bank.

More important, the addition of one service with minimal capital and staff requirements has raised commercial clients' view of the bank's sophistication.

Packaging and Marketing

Most of these services are already in place in the community bank. The only difference is in the packaging and marketing efforts.

Marketing of these services can be customized for each corporate customer. In addition, marketing support materials may easily be produced using current word-processing or desktop publishing technology.

From the commercial customer's standpoint, some real advantages are realized by using a smaller institution.

Some of these may seem obvious, but they can make a significant difference in the daily management of the customer's finances and relationship with the bank.

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