One of the most frustrating things you will come up against as a small business owner are bank charges.
Unlike personal banking, where we are used to paying only to have an overdraft, most business bank accounts have to be paid for. And the charges seem to keep coming whether you’re doing well or badly. The more you pay in, the more they charge you; meanwhile when times are bad you are more likely to be penalised for dipping into the red!
Here are a few simple ways to help you stay on top of bank charges and reduce the impact on your business.
Get a free business bank account
Some banks offer free business banking for 18 months, or even two years. Make sure you check out the limits on such accounts though – some free banking accounts may only let you pay in £3,000 per month and 100 cheques. Such restrictions might be no good for a retailer.
Fully understand the business account’s terms & conditions
While this is the best way to stay charges-free, it’s not the most fun! It’s worth ploughing through the booklet of terms & conditions your bank once sent to you (and will provide you with a copy of). All charges will be laid out in there.
If you can fully understand them you’ll have a better idea of how to work your account to be the most profitable. Once you understand the limitations, it’s easier to tweak your business’s operations to stick to them.
Work the system
Whatever limits your bank sets – work them! If it has a maximum of 100 cheques before you get charged a fee, then pay in 100 a month. Keep a simple written tally so you keep your charges low. This may seem cheeky, but it’s up to you as a small business owner to get the most out of your suppliers.
Use online business banking
Because it’s cheaper for them to run, most banks encourage you to use online business banking. It’s also a benefit for you – you can run your business’s bank account 24 hours a day without a queue in sight!
Your bank may have a deal where you can reduce the cost of running your account if you do the majority of transactions online.
Check your account daily and fully review every statement
A basic we should all do that many of us are guilty of skipping. You should use online banking to check your balance and cash flow every day – after all forewarned is forearmed. You’ll soon spot a problem such as a large payment from a client not appearing on time, and may be able to do something about it before you hit your overdraft.
You should also pore over every bank statement with a fine tooth comb. Check and challenge charges you don’t understand. Mistakes do happen, and if you don’t challenge them you’ll lose money.
The British Bankers Association has advice on how to check your charges here.
Automate as much as you can
Standing orders and automated bank transfers are great ways to bank quickly and easily. Most banks’ online banking systems allow you to set up a future payment, meaning you can deal with invoices when they come in, even if you don’t want to pay for a few weeks. Automated tools like these will help remove possible late payment charges from other suppliers.
Watch out for rubber cheques
If a client gives you a cheque that bounces, your bank may charge you to return it – and you still won’t have the original amount owed. Some businesses, mostly retailers, are now starting to drop cheques as a valid payment method.
Reduce the amount of cash you pay in
It costs your bank money when you pay in cash, as they have to pay counter staff and have security operations. If you can reduce the amount of cash you pay in, you may be able to negotiate a better account with a lower cash limit.
Encourage your clients to pay with other methods by reducing their bill by a few pounds. Some businesses offer a percentage discount for clients that pay electronically within 7 days.
If you have a small number of retail transactions, you will have to balance the cost of paying in cash against the percentage charged by card machines.
Negotiate for better interest rates and lower charges
Depending on your turnover, remember that your bank probably wants to keep your business. It hopes you will stay with it for decades to come and your business will turn into a multi-million pound operation, making it lots of profit!
So if you think you’re getting a raw deal, tell them. Book an appointment with your bank manager. Take evidence with you of the things that are annoying you, plus a leaflet from a rival offering a better deal.
Don’t feel like you are being a pain – your bank is a supplier, and if it can’t give you the right deal, you should act with your feet. Many banks now have specialist business managers who have some authority to put a deal together for businesses they want to keep. And if you don’t ask, you don’t get.
Finally, if you feel you have been charged unfairly and you are not getting anywhere with your bank, speak to the financial ombudsman.
Remember to tell your bank you are going to do this. If you are a borderline case, they may decide it’s easier to refund you than provide the paperwork the ombudsman may demand.