Money Talk: Making business bank accounts work for you

The banks have taken quite a kicking in the past few years but one has to feel sympathy for the hard-pressed customer-facing staff working in the High Street branches. Their numbers culled annually in the cause of ’efficiency’, they’ve had to take the brunt of customer complaints about policies and practices that were devised by the directors who pocketed annual salaries and bonuses 50, 100, or 500 times their salaries. The people, for example, who had to work weekends when one of the largest banks in the UK effectively ’froze’ the accounts of thousands of customers for a week or two because their IT department forgot the basic rules of any upgrade to business-critical systems.

day-to-day stuff

But this column isn’t about bad practice per se; it’s really about the day-to-day stuff of dealing with the money that is the lifeblood of all business. And, of course, petrol retailing is a difficult activity as far as handling money is concerned.

Take a typical dealer-owned solo site doing 5mlpa with a reasonable shop. The fuel sales alone will generate some £6.7m-a-year at current retail prices. Add say another £300,000 for the shop, and you have a business dealing with £7m of funds ’in’ and mostly ’out’ again (and remember that’s not the same as accounting ’turnover’ which is always shown net of VAT). Although many people like to declare that we live in a world of plastic payment, around 35% of the retail sales will still be in old-fashioned cash that’s nearly £2.5m in notes and coins that have to be dealt with in some way.

Of the remainder, a similar figure will be in the form of debit card receipts, and the balance will be credit cards and fuel cards. Naturally all of these have to be paid into a bank account of some sort. Now some of the cash can be recycled by paying staff wages or suppliers’ invoices in cash. But most major suppliers don’t take cash any more they expect to be paid by bank transfer or direct debit. There’s no way out of it, you need a bank account. And it has to be a business bank account using a personal account is not good practice even if your bank somehow failed to question why you were depositing £2.5m in notes and coins each year.

’free banking’

Before we go any further let’s get one thing clear. In the long term, there’s no such thing as ’free banking’ as far as business accounts are concerned. Any bank will incur costs to provide you with account facilities particularly in dealing with the notes and coins and they will have to recover those costs from you. Over the years retailers have tried to reduce the cost of cash handling, for example, by using security firms to collect, count and bank the cash element, but those services themselves can easily cost around £1,000 per month and the bank will still charge you for the other receipts and payments that you make.

All you can do is try to keep the cost as low as possible. That means knowing what terms you’ve agreed with your bank, and then ensuring that they only charge you for the services you’ve used, as per those terms. So check the terms.

Are you being charged per item received/paid, or are they charging you according to the value of money going through the account (what they’ll call ’turnover’)? It’s not unknown for some accounts to be subject to both sorts of charges a sort of ’heads I win, tails you lose’ arrangement as far as the bank is concerned. Are the item charges themselves reasonable? How much are they charging you for cash counting, each debit card transaction, each direct debit payment you make and each cheque that you still write? Is there some sort of vague ’account maintenance’ charge added to the transaction costs each month, even when you’ve stayed in credit or within your agreed overdraft facility?

What about the penalty charges if you accidentally go over your facility or they stop one of your payments? These charges can soon mount up. Our typical dealer site can expect its total account charges to be in the region of £750-£1,000 per month even without any penalty events. That’s equivalent to the gross margin on some 30,000 litres of fuel sales!

shop around

If you’re not happy with the bank’s charging structure or simply can’t get a clear explanation of it the usual answer is to haggle or shop around. Unfortunately that’s easier said than done.

Consolidation was a long-term trend in retail banking well before the current crisis, but since 2007 the choice of banks has narrowed even further.

Halifax/Bank of Scotland is now part of the same group as Lloyds TSB; Santander swallowed the old Abbey and Alliance & Leicester. There are some splits about to happen eg RBS Group is about to divest several hundred branches, but only to Santander; and Lloyds TSB is about to do likewise, probably to the Co-Op Bank.

It’s a bit like shopping between the three or four main supermarkets each will have some enticing special offers and discounts, but once you buy a wide range of products the overall costs look strangely similar.

Take ’free business banking’ which most of the High Street banks claim to offer. It’s primarily for new business start-ups which might get 12-18 months free. If you’re an existing business, you might just get six months ’free’.

Of course, being a fuel retailer you might find that if the small print includes a ’turnover’ limit of £250,000 then your ’free’ banking will last just a week or two.

A lot of the criticism aimed at banks by the small/medium business community has centred on their lending (or lack of). But, quite aside from loans, it seems that if there’s one thing that small/medium businesses need at least as much from a bank, it’s reasonably priced, reliable, clear and fair business accounts that serve their particular circumstances.