GREENWICH, Conn. — U.S. companies expect to earn 2.9% on their cash investments this year, according to new research from Greenwich Associates. After earning an average 2.1% in 2004 on cash — well above the average target of 1.4% — companies ratcheted up their 2005 targets.
To reach those higher targets, companies are cutting allocations to triple-A-rated paper to an average 70% from 75% last year and increasing allocations to single-A-rated paper to 10% from 4%.
They also increased their allocations to double-A-rated paper to about 14.5% this year from about 13% in 2004.
The Greenwich research also found that while 40% of payments and receipts of U.S. companies are handled electronically, that level is expected to approach 50% in one year.
Increasing electronic capabilities are also changing the relationship between companies and their banks, according to Greenwich.
"The ‘electronification' of the cash management business has made relationships between companies and their providers much more complex," Greenwich consultant Pete Garrison said in the report.
"It has also made the process of switching service providers much more difficult, time consuming and expensive."
As a result, companies are cutting back on the number of banks they use and are maintaining existing relationships over a longer period of time. Some companies are concentrating as much as 85% of their cash management business with their top three banks.
"The most sophisticated companies in the United States are raising the stakes for the banks competing for their cash management business," Greenwich consultant Don Raftery said in the report. "These companies are making it very clear that they are willing to handsomely reward valued providers with long commitments and very large portions of their overall business, but they are also raising their expectations."
