Working Capital Management

APPENDIX TO CHAPTER 5 Selecting Noncredit Banking Services

BEFORE THE GREAT RECESSION that began in 2008, companies often used a competitive bidding process to select noncredit banking and vendor services necessary for the management of working capital. This situation has changed as banks have rationed credit to corporate borrowers while expecting that noncredit service business would be included in any banking package. While it is illegal to “tie” banking credit and noncredit services, bankers can strongly “suggest” combining these activities.

At some point, the situation may revert to the earlier practice of competitive bidding. The process starts with a request for proposal (RFP) sent by the company to banks or vendors. Note that several reputable vendors provide the services previously only available from banks. In this discussion, the term bank is meant to include vendors.

THE REQUEST FOR PROPOSAL

An initial step used by many companies is to issue a request-for-information (RFI) letter to candidate service providers. The RFI is used to determine which banks are qualified and interested in providing banking services. A list of potential bank bidders can be developed from previous calling efforts; contacts at conferences and meetings; and referrals from accountants, attorneys, and business colleagues. The responses to the RFI are used to select the banks to be included in the request-for-proposal process.

Companies began using RFPs in the 1980s to formalize purchasing decisions ...