WITH the economy looking shaky, every business should be looking to control its costs. But while many businesses are looking at supplies, energy or staff, few are looking at their bank account to save expenses.
They should be. Alliance & Leicester believes businesses are missing out on half a billion pounds a year by failing to look for the best business deposit account. And the Federation of Small Businesses (FSB) believes that its 125,000 members are paying £65 million more than they need to in banking fees on their current accounts.
As Steve Jennings, business banking director at A&L, points out, “Businesses must review their finances regularly” – and that includes asking if they’re getting what they need out of their bank, and what they’re paying for it.
It’s certainly possible to get a better deal. Over recent years, the number of banks providing services to business has increased. The Big Four still dominate the high street, but choice has been increased by the entry of Alliance & Leicester, the CoOperative Bank and Abbey to the business banking sector.
Less progress
The overwhelming majority of businesses, however, still bank with the major high street banks. And there’s been less progress here: despite the Office of Fair Trading telling banks to offer either free business banking or interest on business current accounts, the banks have been dragging their feet. So if you’re with one of the big banks, it may be time to investigate your options.
Some banks are now offering free periods to businesses which switch to the bank, from six to 18 months. Abbey offers “free forever”. Read the small print though – because cash payments, which can be significant for some businesses, are often only free up to a monthly limit.
There may also be a limited number of cheques you can pay in per month before charges start cutting in.
There is no short cut to sitting down with a spreadsheet and working out the numbers. The right bank account for one business isn’t necessarily the best for the business next door. Different amounts of cash and cheque payments can make a big difference. For instance, the Royal Bank of Scotland’s Free Automated Transactions Tariff, with no charges for direct debits or standing orders, would be useful for many businesses with a regular stream of subscription or maintenance income. But its high cash handling charges would make it unsuitable for a retailer.
Many of the major banks have more than one business tariff. It’s worth checking that you are on the right one – again, this means sitting down with a spreadsheet, not just looking at the brochure. Like all things in business, saving money on the business bank account requires a little hard work.
Any business which generally maintains its account in credit should also consider the effect of interest on its current account. While many accounts still don’t offer any interest on credit balances, others do – and there’s a wide variance in the rates offered. Under £500 will only get a quarter of a per cent interest at many banks, whereas HSBC and Lloyds will pay over 3%.
It’s possible that a cash-rich business with relatively few, large value transactions would get a better deal from an interest bearing current account with bank charges than from a free account which doesn’t pay interest.
There are some good deals available to FSB members (detailed in Table 1). The FSB has an arrangement with the Co-Operative Bank, offering a free account with significant savings over most of the other banks. Other good options are Abbey and Alliance & Leicester, which have set out to attract new business customers and offer excellent terms.
Save hassle
By the way, don’t forget that if you get a good offer from another bank, it may well be worth going to your existing bank and asking whether it can match or beat it. If it can, you’ll save yourself the hassle of switching while saving on bank charges too.
If you’re considering switching to a bank which doesn’t offer a chargefree period, ask if it can sweeten the deal: many bank managers have a limited amount of discretion to use such offers in order to win new business for their branch.
Many of the business banks advertise the quality of their advice and relationships with customers. The question has to be whether you want the bank manager as your adviser – and whether you will get real value out of that relationship.
‘Greatest supporter’
Some businesses claim the bank manager is one of their greatest supporters, and can help find them the right finance to grow the business. If that’s the case, you’re with the right bank. If not, it’s worth considering a switch.
The Big Four banks, of course, offer branch-based business bank accounts. Many business customers prefer to have a branch banking relationship. But if you are happy to work over the internet, there are some good deals available.
Cash handling needn’t be a problem, since many banks use the Post Office network for paying in and offer access to LINK ATMs for taking cash out.
Most banks handle basic transactions correctly and efficiently (if your bank makes mistakes on basic transactions it’s time to switch, however good the deal you’re currently getting!). However, switching an account may involve changing a number of direct debits and other automated arrangements.
It’s easy for these to go wrong, so during the period immediately around a change of bank, be extra vigilant in looking at your statements and ensuring suppliers, customers and employees know they should tell you immediately if there are any problems.
While choosing the right current account is of first importance, choosing the right deposit accounts or debt finance can also be crucial in reducing the cost of finance to your business.
Many businesses don’t have deposit accounts, but if there’s more cash in the current account than is needed for business operations, it’s worthwhile getting a deposit account – the rate of interest will be higher than on any current account.
Steve Jennings says many small businesses still believe you need to have a current account before a bank will let you open a deposit account. In fact, stand-alone deposit accounts are widely available – and can often offer better rates of interest.
Top accounts
Many come from providers which don’t offer current accounts – Kaupthing Singer & Friedlander’s Premier Base Rate 90 has the highest rate of interest at 5.5%, according to Moneyfacts, with Bath Building Society and Northern Rock also showing up in the top accounts. For loans, too, businesses can approach banks other than their current account provider.
The credit crunch may make it more difficult to do so, so go armed with evidence that your business has stable revenues and profitability.
The credit crunch also means that banks may take a view that certain types of business should pay higher interest rates on their finance – so it will be doubly worth while checking the market to see if you can get a better rate.
Businesses which have usually relied on an overdraft should be aware that rates are often better on fixed debt. Besides, if the economy does worsen, a bank can insist that an overdraft is repayable on demand – potentially putting a firm out of business.
Fix the debt with a term loan, and this risk is removed – though the loan will have to be either paid off, or renewed, at the end of the loan period. Leasing deals can also work out well for businesses that have a large asset base.
Finally, once you’ve selected your bank (or banks), don’t forget to keep tabs on what you’re paying. Check your statements: banks can, and do, make mistakes when calculating charges. If there appears to be a discrepancy between what you think you ought to have paid, and the amount on the statement, query it – immediately.
Even though you can claim back wrongly applied bank charges for six years, it’s much easier to do so immediately.
Banks are not the villains they are often painted. They’re businesses trying to make a profit. But that profit could be your margin – so ensure that you are getting a fair deal from your bank. And if you’re not, switch!
