Tips from Malcolm Durham, chairman, FD Solutions
Does your bank love you? Unless you’re one of those annoyingly fast-growing companies that has oodles of cash (and how many of those are there, exactly?) it’s not always easy. The relationship with a bank can be every bit as fractious as a marriage. But there are things you can do to become a more attractive banking customer, and to encourage your bank to treat you with the devotion and respect you deserve.
1. Become a new customer
Banks are businesses, just like you, and they have targets for signing up new customers. You can benefit from this need. Barclays Bank offers small businesses accounting software, payroll and credit referencing free of charge for a year. HSBC offer medium sized businesses…
2. Show growth potential
Of course banks ideally want customers who will grow, because this provides most opportunity for cross-selling of extra services. However, uncontrolled growth that could lead to over-expansion, cashflow shortages and potential failure will not impress. You will need to demonstrate your ability to manage your growth successfully. So how do you do that? Read on!
3. Present them with a realistic business plan
If you expect to grow, you have to plan for it. This goes for start-ups and established businesses alike. Your business plan must be realistic, however: the bank will not be impressed by transparent over-optimism. “People often get carried away with potential sales,” says Mike Conroy, a manager in business banking at HSBC. “You are much better with a more realistic and pragmatic approach. The bank will be more enthused if you do better than your plan.” That means always beating budgets and managing expectations.
4. Manage your overdraft
If you do need an overdraft, that’s fine. Banks have to lend to make a living. The more they lend, the more the bank earns, says Simon Walters, a director of FD Solutions. However, regular breaching of agreed limits will trigger the bank’s concern. So, potentially, will “hardcore” or “solid” overdrafts that don’t fluctuate between debit and credit but remain an apparently immovable sum month after month.
“When risk departments in banks see hardcore or solid overdraft borrowing they assume it’s hiding all sorts of evils,” says Walters. The bank might want to talk to you about converting that hardcore overdraft into a form of loan or invoice discounting arrangement, or generally about whether your cashflow management could be improved.”
5. Do what you say you will
It’s all about communication and trust. If you say you want a certain overdraft for a month and then repay it in a week, the bank thinks you are pretty switched on. If you say you need two weeks and it takes a month, the less trust banks tend to have.
If you agree to supply monthly management accounts, do so – and on time. A good company is one that provides management accounts normally within 30 days of month end. If management accounts arrive late, the bank may start to worry that there are problems brewing.
6. Be open and honest
If you have suffered a previous business failure, don’t hide the fact. If you are open and upfront and can say what you learnt from what happened in the past, bank managers will count that as a good sign. They will shy away from people who say they had a business that failed, but can’t admit that it was even partly their fault.
7. Stay in touch
Banks hate customers who don’t keep them informed. If you know you are going to breach your overdraft limit, call the bank. They may agree to put it up, or arrange other supportive finance. The banks don’t like surprises. This applies just as much in the good times as the bad. Keep the bank in the loop always. If you have the opportunity of a new order coming in, which may mean you need extra working capital, let the bank know. If the order materialises and you contact the bank again, it will already be warmed up to the idea.
8. A Friend for Life
Maintaining a relationship with your bank manager is good business. When you’re shopping around for a bank, try to find a manager you get on well with personally – and, ideally, one who specialises in and understands your sector. Once you’ve found them, you should consider sticking with them, even if that means you move from branch to branch – or bank to bank – as their career progresses.
9. Use direct banking for transactions
Direct banking can mean either telephone banking or using the internet. Both are more efficient for the bank (and probably you) than doing everything through your bank manager.
10. Sign up for multiple products and services
Banks offer a huge range of products to business clients, including loans, leases, hire purchase, other forms of asset-backed finance such as factoring and invoice discounting, commercial mortgages and charge cards. They would like you to sign up for as many as are relevant to your business. If you are good business for them they will be more likely to look after you.
11. Recommend your bank to other businesses
Banks love customers who refer other businesses to them. Barry Spicer of HSBC is keen for customers to develop an emotional link with their relationship managers and then become the bank’s advocates. He explains: “It’s worth a lot to me to have a customer who will be our advocate and say, ‘I get a great service and great value’ – however the customer defines that – and then talk about it, whether in the pub, over the dinner table on Saturday night or with colleagues at work.”
