In 1990 The Bank Administration Institute (BAI), a banking industry trade group, began a project to standardize quality measures across service providers for products in four key areas: Collection Products, Disbursement Products, Electronic Funds Transfer Products and Reporting Products.

Prior to BAI initiatives, most service providers had been tracking quality by relying on internally developed customer feed-back type surveys. Since there was not an established set of industry- wide standards, it was easy to generate reports to clients that were difficult to compare. Cash management is a highly competitive business. Naturally, competitors were initially reluctant to standardize and share performance data. The hurdles to overcome for a successful completion of this project were tremendous. Before the BAI, there was no standardization of process or, for that matter, a common definition of items to be measured for measuring quality. Each participant, convinced that its way of measuring was correct, was reluctant to adopt a different methodology or divulge data which could place them at a competitive disadvantage; not to mention the additional cost burden of changing an established measurement process.

Why is it difficult to have standardized comparisons? Take for example a seemingly standard product offering such as wholesale lockbox. In reality wholesale lockbox differs greatly because of the unique processing requirements of each corporate customer. The "Cash Management Quality–A Management Reference for Bankers and Corporate Treasurers" publication was completed and subsequently released in September of 1992.

The publication is for sale through the BAI.

Note: Not all major banks subscribe to the BAI’s methodology and some have elected to withhold their individual results. (Participation in the data collection guarantees confidentiality to participants.) Some banks may reluctantly release performance data to corporate customers and prospects.

The BAI quality measures are an indication of the relative production error rates experienced in the banking "factory." However, the measures do not address the magnitude of an error and its impact on a particular customer. For example, an error fixed before it reaches the attention of a customer would have no customer impact but would still count against the bank in the BAI methodology. One of the major contributions of the BAI’s efforts, however, is the standardization of terminology. Participants in the design process lobbied diligently to have standardized definitions accepted by all the participating organizations. For example, the lockbox service was broken down into multiple services in an attempt to insure like services were being measured. Specific key operational components were identified for each service. A typical wholesale lockbox service is described as follows:

Service: Non-Scannable Lockbox

Standard definition: The processing of bill payments received by mail via postal lockbox.

The key operations are:

• Mail pick-up
  
• Envelope opening and distribution to workstations
  
• Remittance qualification, including verification of completeness, payment amount and correct payee
  
• Check encoding and photocopy
  
• Preparation of check deposits and forwarding to transit operations
  
• Intra-day deposit reporting
  
• Transmittal of remittance data to customers
  
• Dispatch of remittance documents, check photocopies and account maintenance items to customers

The following quality indicators apply in evaluating the service quality:

• Item Processing
• Error Rate
  
• Deposit Error Rate
  
• Procedural Error Rate
  
• Distribution Error Rate
  
• Reporting Error rate
  
• Transmission Error Rate
  
• Holdover Rate
  
• Distribution Delay Rate
  
• Reporting Delay/Failure Rate
  
• Transmission Delay/Failure Rate
  
• Time for Response

The BAI gave each quality indicator a very precise set of definitions. For example, item processing errors are defined as customer impact errors that occur in the processing of remitted checks, include, but not limited to, the following:

Encoding Errors: Errors in the encoding of the MICR amount field that are not corrected in the balancing process which result in incorrect amounts being credited to customers’ accounts.

Wrong Payee/Account: Checks payable to one lockbox deposit account incorrectly included in another account’s balance.

Live Checks Unprocessed: Checks that should have been deposited which are returned to the customer with the remittance package. Paid in Full- Checks labeled "Paid in Full" that should be sent directly to the corporate customer and not be processed by the bank.

Additional Item Processing Errors: Missing photocopies, non-cash items, and post or stale dated items.

Once each quality indicator was completely defined for measurement, an error calculation was determined.

The BAI booklet has similar error rate calculation formulas for each error tracked across all of the services in the four product groupings. The BAI report painstakingly details each error calculation in detail to insure that the resulting reported numbers are effectively an apples to apples comparison. The value to error tracking at this level of detail depicted in the above example can be used as part of a corporations quarterly or annual report card back to its banks. Treasury managers can track errors on their account and have comparisons made to the error rates for the providers entire operation. This type of reporting gives both the treasury manager and service provider a snapshot of how the service is performing. Detailed operational comparisons can be a valuable tool to reinforce positive or dispel negative perceptions. All too often perceptions are formed based on inconsistent or out-of-context observations. Every one remembers that there was a operational problem because it was discussed frequently over coffee in the cafeteria, but no one really remembers what the problem was, how long ago it occurred and how the problem was resolved. We call this the "squeaky wheel" of corporate memory. It is human nature to remember one bad experience rather than countless good experiences. Quantifiable error tracking can keep your corporate memory from lapsing.

The key to capturing and using quantifiable data is to focus on the components that have the greatest economic impact. There is no sense in expending a significant amount of time or energy capturing and tracking data with little impact on your operation. The BAI has compiled an extensive list of standardized error tracking measurements, but there are also other simple measurements which can be used as quality indicators.

For example, a company concerned about processing holdover in their lockbox could extensively track the number of remittances processed daily, weekly or monthly for each deposit and compare these results with historical volumes. Alternatively, the treasury manager could be less precise and come to the same conclusion about holdover by monitoring the number of items processed by day of week over an extended period. Relatively small Monday deposits followed by abnormally large Tuesday deposits often indicate holdover. Or the treasury manager could do a simple float calculation monthly from the account analysis statement. If all processing is occurring correctly, the float factor should be relatively constant within an acceptable range. Fluctuations above or below the bank indicate a processing problem because of missed availability deadlines.