Now that the banks have weathered the worst of the recession, and Project Merlin is encouraging an increase in lending to small business, now might seem a good time to review your business banking.
However, it’s crucial that you understand all the implications of switching banks, and appreciate what each bank has to offer. The banks are indeed competing hard to gain your custom, but each one offers a different set of features and benefits, so you need to think carefully about which is best for your business.
Making the switch
All the major banks offer incentives to move your current account to them, and the offer of free banking and services appear to be their favourite carrots:
HSBC offers 24 months’ free banking to companies which switch, as well as a fee-free credit card for 12 months. Interest and repayment rates are fixed, and the first repayment on a small business loan can be deferred for three months.
- Lloyds TSB also offers six months free banking for switchers, and 18 months’ free banking for startup firms.
- NatWest offers three months’ free banking for switchers.
- Bank of Scotland offers 24 months’ free banking for firms with a turnover of less than £1m.
- Alliance & Leicester offers a free banking for all firms with turnovers less than £1m (within certain limits), and £100 cashback for anyone who switches their main business account.
- Barclays offers free advice from a dedicated business team 24 hours a day, and will also arrange a face-to-face consultation with an accountant, marketing professional or solicitor.
The above offers may look tempting, but an inertia still prevents many people from switching. It’s a hassle and if this means stalling your business you aren’t going to fancy it, even if it would get you a better deal.
The banks appear to have acknowledged this and are offering to handle much of the switching process for you. The Royal Bank of Scotland offers a timetabled approach, which it says can be completed in two working days. Barclays, meanwhile, offers to take care of mundane tasks such as switching your direct debits and standing orders free of charge, and will even close your old account for you.
Now that banks are offering to do all the work for you, switching doesn’t take that long anymore. So perhaps you should be a bit more demanding of your bank now that they can’t take your custom for granted. The Competition Commission is confident the market is working, so why not give it a try?
Relationship management
Banks all pride themselves on their ability to look after you. Dedicated client or relationship managers and meetings “as regular as you want them” are the norm. However, you should also consider how banks want to work in order to get the most out of them. Familiarising yourself with the main types of finance available (see above) is a good start.
Relationship managers are unlikely to have an in-depth knowledge of all business services, and are primarily there to act as your first point of contact and advise on your account. If you enter the bank knowing what you want, you have a better chance of leaving with it, especially if you give plenty of notice. Otherwise, they move a little slower than you would like. Banks are risk averse and want to know as much as possible about you.
“A no-surprises culture is great,” says Stuart Yuill, head of business development at the Bank of Scotland. “A key question we will always ask is: ‘What are your plans for the business?’” Yuill says he regards the bank’s relationship with its clients as a “partnership” and seeks to really understand their business.
Socialising with your banker is still something which happens and can be a good idea as they may have a lot of experience in your sector. Your manager is a good potential source of contacts and there’s no harm in picking their brains, even if it costs you lunch. Also, although banking is increasingly automated, it is still a person that has to make the decisions and you’re more likely to get a favourable one if you’ve spent time with the one that is making it.
Charm offensives aside, the better your business is doing the greater the influence you are going to have in dealing with your manager. Paul McCormick, currently a key member of Amey’s International Design Hub in Birmingham, spoke to us about his experience as managing director of engineering consultancy GCA – a period in which he met the company’s bank, NatWest, once a year, and gained a personal insight into business banking:
“The key is to try not to be reliant on them. If you have a permanent overdraft, you are at their beck and call and it is very hard to switch,” he says. “At our annual meeting we asked them to reduce the charges, and really they had to.”
The banks are keen to point out that it isn’t just the charges you should be concerned with, but also the level of customer care. This might sound a bit glib and it is an argument that’s clearly in their interest, but a lack of relationship might leave you feeling a bit isolated.
Jennifer Irvine, founder of £1m turnover food business the Pure Package, has been with Abbey National since she began trading nine years ago. She incurs no charges at all, but feels that no one at the bank even knows who she is. “I suppose you get what you pay for, and I pay nothing,” says Irvine who has not even got an overdraft facility.
“There’s no personal service at all, and this is important as there are products I could be using.” However, she says the prospect of switching is galling and is concerned she might lose important data. She has managed to handle her finances to date by using online banking, which is becoming very popular.