Guide to reviewing your bank accounts and facilities
Freelance writer and business consultant Susan Campbell, FFTP, ASIA, CPA, outlines how to tackle the task of formally reviewing your banking requirements.
A good banking relationship is crucial to a business operation, irrespective of its size or type, including SMEs, larger companies and not-for-profits.
Banks are vital to the financing of a business operation and a good relationship with your bank can help you negotiate better terms for your banking needs. The onus is on you to be pro-active in getting the best banking solutions for your needs.
Even if you are satisfied with the pricing and service of your bank, you should still meet with your bank once a year to discuss your banking requirements and any improvements in products and services that your business could use. Business growth, changes in circumstances or new, improved banking products may mean that your current banking solution is not meeting your business needs.
Many businesses split their banking between two or more financial institutions to have more control over their financial arrangements. These businesses usually have one main bank provider which does most of their banking transactions. But whether you have one bank or two, if you are not happy with the service or facilities provided by your bank, you should conduct a review of your bank(s) accounts and facilities in order to assess whether it is worth changing banks.
The process for reviewing banking arrangements is similar for large and small businesses. Dont assume that just because your business is small it is not worth going through a formal review process. Doing so will put you in the drivers seat when talking to your bank. Outlined below is a guide on how to tackle the task.
Step 1
The first step is to create a list of all bank accounts used by your business.
Include bank account details such as branch, BSB account no, account name, sweep or set off arrangement and what the account is used for.
You should also include all social accounts, old companies, branch accounts, petty cash accounts and special purpose accounts.
You may be able to obtain this information from your bank statements or by asking your bank(s) or your staff. You may be surprised at the number of accounts you have that you are unaware of. This may be the case with charities and not-for-profits in particular.
Step 2
Next, obtain a letter of facilities from all the banks you deal with. The aim is to build a complete picture of all your banking arrangements with your financial institutions.
In your letter, you should ask your banks to ensure that all facilities are covered, including:
credit or purchasing cards
merchant facilities
trade facilities
lease facilities
any information on loans that the bank provides
letter of credit
internet banking
BPay
wage and cheque cashing
Step 3
The third step is to select your three preferred banks. Your selection can be based on criteria of your choosing, such as your main bank or the bank you have the most transactions with, quality of service, friendly staff, convenience, or competitive pricing. Knowing your existing bank manager or having a favourable impression of your banker is often a good reason to include a bank in your list.
Step 4
Once you have the required information, you are ready to approach your most preferred bank. Your aim should be to give the bank an opportunity to improve its pricing and to review your current business banking procedures.
Make an appointment to visit your business banker. Discuss various facilities you have with that bank, or with any other banks or lending institutions. It is usually the best to be open and disclose all relevant information. Information such as your last tax return and cash flow forecast may be requested by your banker, so take copies with you.
After providing this information, ask your banker to spend some time considering the best package and fees available to you. Usually a bank will give you its best rates when you agree to do all your transactional banking arrangements through them.
The areas you should be reviewing are loan fees, interest margins, merchant facilities, and cash handling if you are in a retail business or organisation. However, this will vary according to your business or your organisation.
Step 5
If your bank offers you improved pricing and service levels, and you decide to stay with your bank, you can stop the review process at this point. Ask your bank to send you a letter of agreement with details including the re-negotiated fees, charges and service levels offered. If possible, negotiate the terms for one to three years.
Step 6
If your bank does not offer a better deal in pricing, find out why and what is missing from the picture. Then, make an appointment with the next bank on your preferred bank list.
Go through the same process (Step 4) with this bank.
If you disclose your current pricing, the second bank may only offer you a deal that is only slightly better than your current. Unless the new bank offers substantially better pricing, product or service, it is advisable to remain with your current bank as the inconvenience and administration costs incurred by bank switching may outweigh any benefits.
If you receive the same response from your second bank, and it is unable to improve on your current pricing, it may be that you have the best pricing available for the volume of business that you do. At this point, you can either stay with your first bank or meet with the third bank on your list of preferred banks.
However, if the second or third bank on your list shows a definite improvement, you should consider your options:
Move to the new bank
Should you move all business to the new bank offering attractive pricing? If you are seriously contemplating the offer, consider the following factors before changing banks:
is the new bank willing to sign an agreement on the pricing for three years?
will your company incur additional costs as a result of switching banks? For example, costs in notifying customers and suppliers, changing deposit and cheque books.
is the new banks service level good? You may be able to find out by talking to some of its customers. You may have customers or suppliers who have an account with the new bank.
will the account manager allow you to meet his or her direct boss and the credit officer handling the account? These people are usually the decision makers on your account and meeting them to discuss your banking solutions will enhance their understanding of your business needs. If you are not allowed to meet with these people, the bank is giving you a message that you are not an important customer.
Ask your main bank to match the new pricing
You could approach your main or current bank to ask them if they could match the new, more attractive pricing.
Undertake a bank tender
Undertaking a bank tender is more usually an option for larger corporations that have many facilities with banks. However, smaller businesses, especially those growing quickly, may wish to approach their banking in this manner.
Specialist consultants with experience in bank tenders are usually engaged to write the tender or a Request for Information (RFP) and to analyse the results of the tender. However, your company can conduct a bank tender itself. A good starting point is to ask your major bank for a pro-forma spreadsheet to be completed (see the attached example). Providing the same pro-forma spreadsheet to all banks tendering for your business will enable you to more easily compare the banks pricing and product information.
If you hire consultants, make sure you ask for their references and check them out before entering into a contract.
You should contact the banks you are inviting to tender, for the name and contact details of the right people with whom to discuss your tender. You should also provide these banks, with information about your accounts, size and volume of transactions, and future growth of firm
Dont be surprised if a number of banks do not respond to your tender. They may feel that you already have the best pricing or deal and cannot improve on it. They may also feel that they are unable to offer you a better deal due to your industry or geographic location.
Once the banks have submitted their tender, you should discuss their pricing with staff who deal directly with the bank. Take note of any set up fees, computer requirements or software changes that you would have to incur, bank locations compared to store / office locations, and other inconveniences or costs not included in the pricing. Consider the products that are most crucial to your company such as BPay, internet banking or cash handling and focus on them.
Also consider any loan funding that is included in the tender. If it is more than overdraft or purchase cards, then this will require some expertise as it is often the documentation that can cause problems, not the interest rate (see article Understanding the risks in loan documentation).
Make sure that the bank products offered in the tender are currently available. Some banks may promote new products that are not available yet which is not helpful to a business dealing with the present. Ensure all products that you sign up for are currently working in the market. Ask for references from other customers, if in doubt.
If you are unsure that your bank offers you competitive pricing, you can compare its interest rates, fees and charges against the markets benchmarks, with the new CPA Australia / Cannex small business indicators. The CPA Cannex indicators are updated weekly.
