Cheque mares
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A recent Which? report lambasted banks for over charging customers but where can hauliers get the best deal? We make a few checks.
Keeping down costs in banking is much the same as with any other supplier—a matter of periodic review and price comparison.
The first step in cutting your costs is knowing what they are. This entails reading your bank statement—a practice which remarkably few businesses indulge in—and understanding it. All the banks are now pledged to pre-notify customers of their charges before they extract them from your account. Hauliers should make it standard practice to check these as soon as they come in. Complaining after the charges have gone has considerably less force.
Unchallenged
The larger the amount, and the longer it has gone unchallenged, the harder it will be to persuade the bank to return it. If you don't understand any items, ask. The most complex figures often relate to interest on borrowings charged on a day-to-day basis. It may be worth investing in one of the £100 software checkers to keep tabs on this.
Next, compare costs. Our own survey of banks' small business tariffs shows little change during 1994. As profits have soared, banks have wisely decided to freeze their high-profile account maintenance and transaction charges. Of the big four, all charge £7.50 a quarter, and three charge between 64p and 67p per transaction. Only the Midland is significantly lower, at 50p for cheques and 50p for standing orders and direct debits. Best value is still the Bank of Scotland, with a zero maintenance charge, and a range of 42-48p for transactions. Giro Bank is also worth considering its 65p transaction charge can cover up to five cheques.
If you receive a large number of smallish cheques. consolidating them in a convenience account, such as Giro Bank (at any Post Office) makes good sense. Some small businessmen use building societies for this purpose, and enjoy a little interest on their balances as well.
But the route to really serious cost-savings is down the information superhighway. New technology can deliver transactions at as little as 1.2p each. New-ish technology to be precise—BACS, the Bankers Automated Clearing Services, has been around for many years. What has changed is the spread of PCs in small haulage firms. Put on-line, i.e. plugged into the telephone network, they can be used to make and receive payments and transfer surplus credit balances to high-interest accounts, if only for a few days. Transactions can be instant or they can be set up to take place at a specified date in the future, to take maximum advantage of settlement discounts, or simply to deal with them at a convenient rather than a busy time. As a bonus—or the main benefit, in some cases—paperwork and book keeping are reduced and up-to-date financial information is always available.
Different banks have different electronic services, both on and off-line, some of which are designed to provide information rather than conduct transactions. Approaches to charging vary considerably too. As an example, Bank of Scotland's rates for BAGS transactions are £2 per block of 1-49 entries, plus 1.2p per entry. For 50-99 entries, the block fee rises to £3, and above 100 entries, the rate is £3 per block, plus 3.5p per entry.
Interest on loans is the other main source of bank costs. Authorised overdrafts are charged at a percentage over the base rate, determined by the bank's assessment of the risk. Bankers are natural pessimists, and if they know little about your business, they will assume the worst and charge a higher rate. Keeping your bank manager in regular touch with the business is the first step towards securing a realistic rate—and that applies even if you hit a rough patch. That is exactly when you may need the bank's help, and an informed response to your crisis will be of more help than a panic plug-pulling triggered by a sudden silence at your end. But beware of the over-friendly bank manager who is only too willing to spend all morning poking around your operation and staying to lunch. Many banks now charge for staff time—and more steeply for senior people. Be certain of the terms on which you speak to bank staff— even on the phone.
Punitive
Overdrafts have limits, and the interest rates, should you exceed them are punitive-20 to 30%—and often accompanied by a welter of daily and/or heavy transaction charges. This can be a ripe area for bank "mistakes— such as applying the unauthorised rate to the authorised part of the borrowing. Watch out, but better still, steer clear of your overdraft ceiling by investigating other forms of finance.
This is a good idea in any case, as banks have changed their approach to lending in the past few years. The all-purpose overdraft, often secured on fixed assets such as property, has fallen out of favour,largely because in the recession the property proved to be worth a lot less than its book value when called in. The current fashion is to pay greater attention to a business's health, as shown by its business plan, sales ledger and cash flow, and to extend an overdraft facility mainly for short, rather than medium or long-term requirements.
Respectable
Factoring—where the bank or finance house buys your invoices for cash—has become a respectable way of maintaining cashflow. Lending against stock or raw materials is another recent trend. For medium-term investment in plant or equipment, such as vehicles, asset-based finance—which may take the form of hire purchase or leasing (the choice depends on the tax advantages)—is now the favoured approach. All these forms of lending are offered by specialist finance houses, often divisions of the banks themselves.
Finance is no longer a one-stop shop. A typical business may meet its day-to-day needs at more than one bank, and have borrowing arrangements with various other finance houses. One advantage of such arrangements is that it becomes easier to see where the money you spend on banking is going, and to make sure you are getting value for it.
0 by Peter Willis