Account Analysis Statement Review

Why Account Analysis Statement Review Matters
For a treasury professional, bank fees are one of the most controllable costs in the treasury function, yet they are frequently overlooked. Banks typically bill companies for cash management services through an account analysis statement, and errors, duplicate charges, incorrect pricing, and unused services are common. A disciplined review process can save a company thousands to millions of dollars annually, verify that the bank is honoring negotiated pricing, and provide insight into how the company actually uses its banking services. For the CTP exam, this topic appears within Corporate Liquidity Management and Working Capital/Relationship Management content, and candidates are expected to understand the components of the statement, the calculations behind it, and the review process.

What an Account Analysis Statement Is
An account analysis statement is a monthly document a bank sends to a corporate customer that itemizes the services used, the volumes of each service, the unit price charged, the total service charges, and the balances maintained during the period. It also shows how much of the fee obligation was offset by the earnings credit on collected balances and whether any remaining fees are due in hard dollars. In the United States, the ANSI X12 822 (Account Analysis) transaction set and the AFP Service Codes standardize the format and service descriptions so that companies can compare charges across banks more easily. Globally, the TWIST BSB (Bank Services Billing) standard serves a similar purpose. Think of the statement as an invoice combined with a usage report.

Key Components of the Statement
1. Average Ledger Balance – the average of daily book balances as recorded by the bank, including items not yet collected.
2. Average Float (Uncollected Funds) – the average amount of deposited items for which the bank has not yet received good funds.
3. Average Collected Balance – Ledger balance minus float; the balance on which the bank can actually earn.
4. Reserve Requirement – historically, banks deducted a percentage (commonly 10%) for Federal Reserve requirements; since 2020 the US reserve requirement is 0%, but many banks still show the line, and exam questions may still include a reserve factor, so read carefully.
5. Investable (Available) Balance – collected balance after any reserve adjustment; this is the balance that earns credit.
6. Earnings Credit Rate (ECR) – the rate the bank applies to investable balances to generate a non-cash credit that offsets fees. The ECR is set by the bank, often tied to T-bill rates, and is not interest income (so it is not taxable to the company, which is one reason compensating balances can be attractive).
7. Earnings Credit Allowance – Investable Balance × ECR × (Days in Month / Days in Year). Banks may use 365 or 360 days; the statement will state the convention.
8. Service Detail – each service (account maintenance, ACH items, wires, lockbox items, positive pay, information reporting, etc.) with volume, unit price, and extended charge.
9. Total Service Charges, Balance-Compensable vs. Fee-Only Charges, and the Net Position – whether the earnings credit covered the fees (excess credit) or a shortfall must be paid in fees (deficit).

How the Calculation Works
Example: Average ledger balance $1,000,000; average float $150,000; reserve requirement 10%; ECR 2.0%; month has 30 days; year basis 365; total service charges $1,200.
Collected balance = $1,000,000 − $150,000 = $850,000.
Investable balance = $850,000 × (1 − 0.10) = $765,000.
Earnings credit = $765,000 × 0.02 × 30/365 = $1,257.53.
Net position = $1,257.53 − $1,200 = $57.53 excess credit. In most banks excess credit is forfeited (cannot be carried forward or paid out), which is why over-compensating with balances is wasteful.

Related calculation – Required Collected Balance to Cover Fees: Fees ÷ [ECR × (Days in Month/Days in Year) × (1 − Reserve Requirement)]. Using the example: $1,200 ÷ [0.02 × 30/365 × 0.90] = $811,128 (approximately). Any collected balance above this is excess.

Another related concept is the balance equivalent of fees or converting fees to balances and vice versa, which allows treasury to decide between paying fees in cash versus maintaining compensating balances. The decision depends on comparing the ECR to the company's opportunity cost of funds (what the company could earn by investing or save by paying down debt). If the company's alternative return exceeds the ECR, it is better to pay fees and keep balances low; if the ECR exceeds the alternative return (after tax, since earnings credit is not taxed), holding balances is preferable.

The Review Process
A thorough account analysis review typically involves these steps:
1. Verify Balances – reconcile the bank's ledger and collected balances with the company's own records and daily balance reports; investigate float that seems too high given deposit mix and availability schedules.
2. Verify Pricing – compare each unit price with the negotiated fee schedule or contract. Unauthorized price increases and 'default' pricing are a frequent source of overcharges.
3. Verify Volumes – compare service volumes (wires sent, ACH items, lockbox items, checks paid) with internal transaction counts. Watch for duplicated items, services charged on closed accounts, or volume on services the company never requested.
4. Check ECR and Calculations – confirm the ECR applied matches the agreed rate or index, the day-count basis is correct, and the reserve factor (if any) is applied properly.
5. Review for Unnecessary Services – identify services still being charged that are no longer used, redundant reporting modules, or accounts that could be consolidated.
6. Trend Analysis and Benchmarking – track fees month to month and across banks; use AFP Service Codes to compare like-for-like services among relationship banks and against industry benchmarks.
7. Dispute and Recover – document errors, submit them to the bank, and track refunds. Many banks have time limits on fee disputes, so timely review is essential.
8. Strategic Use – use the data in bank relationship reviews, requests for proposal, and in allocating wallet share among banks. Account analysis data also feeds internal cost allocation to business units.

Many treasuries automate this with account analysis software or treasury management system modules that ingest the 822 or BSB file, flag variances against contracted pricing, and generate exception reports.

Common Pitfalls Revealed by Review
• Charges for services at list price instead of negotiated price.
• Fees on dormant or closed accounts.
• Incorrect ECR or incorrect day-count convention.
• Float that does not align with the bank's published availability schedule.
• Fees that are 'fee-only' (not offset by balances), such as some FDIC assessment pass-throughs, which companies often fail to notice.
• Lost excess earnings credit because balances are higher than needed.
• Volume counts that do not match internal data (e.g., duplicate lockbox item counts).

Exam Tips: Answering Questions on Account Analysis Statement Review
1. Memorize the balance hierarchy: Ledger → minus Float → Collected → minus Reserve → Investable. Questions frequently give you ledger and float and expect you to derive the investable balance before applying the ECR.
2. Apply the ECR correctly: Earnings credit = Investable Balance × ECR × (Days in Period / Days in Year). Read whether the question specifies 360 or 365 days and how many days are in the month. A frequent trap is forgetting to prorate the annual rate for the month.
3. Know the reverse formula: Required balance = Fees ÷ [ECR × (Days/Year) × (1 − Reserve)]. Questions may ask how much balance is needed to fully offset fees, or how much excess balance a company is holding.
4. Remember that earnings credit is not interest: it is a soft-dollar allowance, generally not taxable, usually not payable out in cash, and often forfeited if unused. If a question asks why a company might prefer paying fees in hard dollars, the answer typically involves the opportunity cost of funds exceeding the ECR, or avoiding lost excess credit.
5. Distinguish fee-based from balance-based compensation: be ready to compare the two and to state that compensating balances tie up liquidity and may not be optimal when market rates are high relative to the ECR.
6. Know the standards: ANSI X12 822 and AFP Service Codes in the US; TWIST BSB internationally. Questions may ask which standard enables electronic receipt and comparison of bank fee data.
7. Focus on the purpose of review: when a question asks for the primary reason to review account analysis statements, the best answer is usually to verify that charges match negotiated pricing and actual service usage (fee accuracy and control), rather than, for example, to calculate interest income.
8. Watch for distractors on reserve requirements: if the question gives a reserve requirement, use it even though the current US requirement is zero. If none is given, do not invent one.
9. Identify the best corrective action: for scenario questions, the appropriate response to discovered errors is to document the discrepancy, request correction and refund from the bank, and update the fee schedule or service agreement, rather than simply switching banks or ignoring small amounts.
10. Work the math step by step and sanity-check magnitude: monthly earnings credit on a few hundred thousand dollars at a 1–3% ECR will be in the hundreds to low thousands; if your answer is far off, you likely skipped the monthly proration.

Summary
Account analysis statement review is the process of validating the bank's monthly billing for cash management services against negotiated pricing, actual usage, and correct earnings credit computation. It protects the company from overcharges, optimizes the balance-versus-fee compensation decision, and generates data for bank relationship management. On the CTP exam, expect calculation questions involving collected and investable balances, ECR proration, and required balances, as well as conceptual questions on the purpose of review, the nature of earnings credit, and the standards (822, AFP Service Codes, TWIST BSB) that support efficient analysis.