Recovering unnecessary costs from your bank

Feb 25, 2016
By Ben Martin, CEO of specialist banking and treasury advisory service bmbal.
Recovering unnecessary costs from your bankIt’s essential to be as profitable as possible, but even if you are scrutinising costs closely it’s likely you are incurring sizeable business costs unnecessarily.  In fact, you could be incurring £50,000 of extra costs annually, probably more, just by failing to look at one vital area of your business.    

Where are you paying unnecessary costs?
So, why are businesses in the moving sector incurring unnecessary costs?  Quite simply, many businesses are overpaying on banking costs because products and services that were a good fit at the start of the banking relationship may not be so appropriate now.   

Of course, not every moving business is in this position but if you’re not measuring your banking relationships then you don’t know.  

Start with asking right questions

So, how can you assess if you might be paying unnecessary costs?  ‘No’ answers to the following questions will highlight potential areas that need addressing: 

  • Do you have an annual benchmarking process in place to check that the products and services you receive from your bank are ‘fit for purpose’? 
  • Have you checked to ensure that your financing costs are fair and reasonable?  And compared against other movers or similar sized UK companies? 

  • Have you reviewed all financing options (or still using traditional bank finance)? 

  • Are you managing your daily/weekly liquidity needs efficiently? 

  • For a European-wide or international moving business, have you reviewed your currency risk management programme – checking pricing and suitability for your operations? 

  • If you are making a greater number of international payments have you reviewed the costs of each payment? 

  • If you are multi banked – do you have a framework that ensures you are taking the optimal mix of products and services from across all banks?  Is this formally measured and tracked (or a 'gut instinct')?  

Banks provide vital services to the moving industry, be it financing of fleet and warehouse assets, short term liquidity facilities to ensure daily cash flows are managed and international payments are made, currency hedging lines, credit cards and insurance.  But more often than not, they are just that: providers of a service and not partners.   

Put your banks in the spotlight
Once you have spotted potential issues in your banking relationships you need to identify where you can strengthen your banking relationships, make yourself more attractive to banks to reduce costs and receive enhanced products and services.  Often, this can be done at little or no extra cost.   

Seeking professional help with this analysis will save you time, effort and provide useful insight.  You can also start this work yourself.  In this case you need to review where you think you are incurring the highest banking charges (interest paid, currency hedging spreads, banking/fuel payment scheme fees and costs, inefficiencies in chasing down invoice payments) and assess how these could be refined to become more attractive to your banks.  Ask your current banks “Why are the costs set at this level and how can we work together to reduce them?”.  This is not as crazy as it seems and, in my experience, banks welcome this debate.    

Banks don’t want, and are unable, to provide all banking products and services to every UK business.  They aim to maximise their allocation of capital to where the maximum reward lies, adjusted for the risks they take in generating such income.     

Should movers worry what returns their banks are making?  Yes, absolutely, and businesses should ask banks what products and services they want to participate in.  You need to know whether your bank is able to support all, or just some, of the banking products your business needs.   

Don’t assume your bank is able to offer a high quality international payments service if it’s UK focussed.  It might be desperate to provide a credit card facility for your fleet’s European fuel costs, with heaps of useful spend analysis.  Equally, an overdraft maintained with a secondary bank, to fund unexpected cash flow problems may not, by itself, create a level of profitability to keep them interested.  You want the right products and services, at the optimal price, and you also want to attract and engage with banks that want to do business with you. 

It’s also important to identify, and accept, when a bank would prefer not to provide a product or service.  Knowing why puts you in a position of knowledge and strength for discussing your needs with other banks.    

By failing to measure your banking relationships you could be needlessly incurring higher costs.  Measuring your bank ensures you get the right products and services, at the right price, from the right mix of banks.  After all, you don’t buy fuel, crates and a warehouse from the same provider – so why should this apply to your banking services and providers?

Ben MartinBen Martin 
Ben has just launched Business Banking Measured - a free, online, banking measurement tool, at www.bmbal.com , helping business owners and directors reduce banking costs and improve the effectiveness of their banking services.