The CTP Exam: Final Preparation

The next few blog posts will deal with last-minute preparations for people taking the AFP’s Certified Treasury Professional exam in the December 2014 – January 2015 window. People who are planning to sit for the CTP exam next summer have time to prepare a customized study program. We will discuss how to set up a study program starting next year.

How difficult is the exam?

The Certified Treasury Professional exam was conceived and written to test the knowledge of a relative newcomer to the field, not someone with many years of experience. The questions are intended to test knowledge over a broad range of concepts, practices, and techniques. You can expect questions of differing degrees of difficulty, but none of them will be impossible to answer.

As in most multiple-choice tests, there will usually be one incorrect answer that is close to being correct—this is the distracter. It will sound plausible or even be a correct statement that, while true, is irrelevant to the question. You should be able to narrow the answers for most questions to the correct one and the distracter. Remember, it pays to answer all the questions, even if you guess blindly, because there is no additional penalty for an incorrect answer.

Another difficulty many exam candidates face is testing fatigue. For many, it has been a long time since they had to sit for hours and concentrate on exam questions. One way to prepare is to simulate the time period and see how much stamina you have or when your mind begins to roam. You can try to incorporate a few mental gymnastics into your routine to be sure that you pay attention during the exam.

It is important to pace yourself as you take the exam by periodically checking your time. Don’t forget that 170 questions in 210 minutes means you have little more than one minute per question. Aim at giving yourself one minute or less per question so you have review time at the end.

If you find yourself really stumped, take your “best” shot and mark the question to come back to, for review. Remember, though, this means that you must have enough time after finishing the test to return to the tough questions.

Last minute study tips

  1. If you have trouble with formulas, be prepared to write them down on scratch paper right before you start the exam. This means that you’ll have to memorize them or work so many problems that the formulas are old hat to you.
  2. You can make your own study aids to help with difficult materials or to memorize lists. Many items in the body of knowledge are simple definitions, and the only way you can remember them is to memorize those that you have little familiarity with.

One method is to use a presentation program like Microsoft PowerPoint®. Each list or topic that you want to drill yourself on should be entered in question-and-answer format. For instance, to remember the roles of the Federal Reserve, enter “What are the [five] roles of the Fed?” Then include as answer bullets the five roles (supervising and regulating bank holding companies, state-chartered banks, etc.) as individual bullets.

Next, while still in PowerPoint, go to the “Slide Show” menu and select “Custom Animation,” Select “Text 2” (or whatever it is called), and the answer bullets should be selected. Click on “Animate” and “On Mouse Click.” Click on “Effects” to select how the bullets will appear. (I usually select “Appear.”) Then click on “OK.”

Now you have your study aid. When you initiate the slide show the question will appear, and each answer bullet will appear only when you click your mouse.

Another way is to write the question on one side of a large index card with the answers on the flip side. Then, you can ask yourself the question, and flip the card to find the answers. Flash cards can be used in small groups as well. You can even enlist a member of your staff or family to help by asking you the questions.

If you’re not a fan of DIY, TMExam.com  offers study aids and practice exams.

The next blog post will offer tips on answering various types of multiple-choice questions.

Kenneth Parkinson
Copyright 11-21-14
All rights reserved.

Reducing Bank Charges without an RFP

When the issue of increased bank charges occurs, many treasury managers think an RFP is the answer. Competitive bidding by banks to provide non-credit services usually does result in lower bank charges. However, the time and effort required for an RFP project is often enough to squelch the idea.

But there is a way to reduce banking charges without doing an RFP. All it takes is for you to take a long, hard look at your account analyses.

Finding and reversing errors and charges for unnecessary services in your account analysis is the easiest and fastest way to reduce what you pay for your banking services. It takes some time and patience, but it’s not hard to do.

Step One: Compare Your Account Analysis with Your Banking Agreement

To start with, you need a copy of the bank agreement that shows the services you use and the cost per service and per item, as appropriate. Most companies have agreements for two, three, or five years.

If your firm doesn’t have a fixed price agreement, that’s your first big discovery – and your first task is to get a pricing agreement for a defined period of time. It’s impossible to manage costs if the provider can change fees without your consent.

Next, check to see that you are still using the services documented in your bank agreement and that the fee is the same as in your bank agreement or in subsequent modifications. During the course of a multi-year agreement, companies often add and drop services. You should check that you are not being billed for services you have dropped. Of course, you also expect to be billed at an agreed-upon price for services you have added.

Step Two: Check Actual Charges

The next step is to review the charges for each bank account in the account analysis by multiplying actual service item charges (e.g., for items deposited) by the monthly volume and adding the account maintenance fee for a total monthly cost for each bank account.

As you do this, also verify that the fees shown in the account analysis match those in our bank agreement. Believe it or not, errors do occur.

We once had a client receive a bank proposal with a daily activity charge that was the same as the monthly account maintenance fee, but this particular service had no daily activity. Instead of one monthly fee of $130, the proposal showed a maintenance charge of $130 plus 31 days x $130, for a total monthly charge of $4,160.

 Step Three: Identify Discrepancies

Once you have verified the charges on the account analysis, you must check every bank account listed on your account analysis to see if it is still active. This is tedious but important. A lot of erroneous charges arise from “phantom” accounts.

Did you forget to close the account because it is no longer needed? Or did the bank accidentally keep it open after you requested it be closed? Inactive accounts are costly. An account with no activity still has a monthly maintenance fee.

Finally, after checking accounts, pricing, and calculating volume charges, you should be able to identify errors of arithmetic, incorrect volumes, incorrect pricing, and “phantom” accounts. Any errors you find should be traced back through previous account analyses to calculate the total dollar amount that may have been mistakenly charged. And remember that not all the mistakes are made by the bank. Any errors on your part, such as keeping unneeded accounts, should be addressed immediately.

 Step Four: Resolve Discrepancies with Your Bank

Now you have a documented list of discrepancies that you can discuss and resolve with your banker. Don’t wait. At the beginning of an RFP consulting engagement we identified $60,000 in erroneous charges made by one bank over the three previous months, and the project hadn’t yet begun!

Note: See RFP Tips for more help in deciding whether or not to do an RFP.

Joyce Ochs
Copyright 11-3-14
All Rights Reserved

Thinking About Cash Flow Forecasting

Cash flow forecasting often puzzles and disappoints many treasury managers and their bosses. On the surface, forecasting doesn’t seem so impossible.

You’d think it would be simple to fix or enhance your forecasting. However, this is often not the case. You and/or other users may be wedded to the format, timing, etc. of the current forecast. This creates a bias that can be difficult to overcome. One way to try to work around this barrier is to try to recreate the forecast with a different approach than you currently use. What do you and other users want to get out of the forecast?

The first question you need to answer is how [bad] have the forecasts been? Have there been any wild errors? How routine has the forecasting process become? If it’s well ingrained, the process may be tough to change.

The next question you should answer is, “What is it worth to you to produce accurate, reliable cash flow forecasts?” I’ve run across treasury managers who have had to justify changing their forecasting system by how much dollar benefits will result. This is not how you should try to justify your forecasting system. Forecasting should be a core treasury activity and not subject to a cost-benefit evaluation.

How active are you with your forecasting system? Many treasury managers are too passive and are willing to accept forecasting inputs without questioning suspicious numbers. If you accept what you’re sent and never give any feedback, you are telling the sources that the forecast is acceptable. You need to be “hands-on” with your forecasts and let people know that accuracy is required. Otherwise, the forecasts will not be valued very highly.

How do you know if your forecasting is effective? If you are the ultimate user of the forecast, this is an easy question to answer. You know if it helps or doesn’t do much. If you prepare the forecast for someone else, you need regular feedback from the users of the forecast. You may have to meet with potential forecasting sources to gauge the level of accuracy and reliability.

Sounds tedious, right? Well, there really are no shortcuts. When I first joined my company, a large multinational, the treasurer said, “You know all about statistics, etc., so I’m giving the forecast to you.” It took a few years to develop a solid system. It was something I never stopped tinkering with.

One approach might be to try to forecast from two different perspectives. If you currently are using a top-down approach, which estimates cash flows based on some basic financial flows, such as sales, try to prepare a bottom-up forecast. This approach isolates key cash flows and develops estimates for them.

For more ideas and approaches, see “Cash Flow Forecasting: A Hands-on Approach” and models.

Good cash flow forecasting takes time and effort. Most of the tools are pretty crude. I often say that cash flow forecasting is not quantitative; it’s numeric. The benefit is that an effective cash flow forecast has the potential to make your job easier and your contributions to the company’s overall financial performance more substantial.

Kenneth Parkinson
Copyright 10-02-14