By Finley Horner
In today’s low interest rate environment, banks get squeezed on net interest margins and have to work harder to find other ways to profit. Bank service fees help bridge that gap. As a business owner or manager, you value your banking relationships and understand that fees are part of doing business.
You count on your bank for lending, account management, depository services, unsecured credit, ACH, wire transfers, information reporting and more. The more services you use, the more fees you pay. If you do business with more than one bank, you pay service fees at each.
Your business may spend thousands of dollars or more on bank fees. If you don’t have a treasury team to manage fees and other complicated banking structures, you may find yourself at the mercy of your bank. But even without in-house treasury expertise, you have options to pay less for the same great services. The trick is to know what you are doing.
There are more than 2,800 potential fees that a bank may charge a business client, depending on industry, type of business and financial capacity. Most businesses have just a subset of these services. At SIB Fixed Cost Reduction most of our clients have less than 200 different fees, and at least 50 of those fees are common to all business banking accounts.
Fees may be charged on a one-time or ongoing basis. Some fees are charged at the time of the transaction, and others are charged monthly or quarterly. There are fees for account maintenance, withdrawals and transfers. The bank may charge you a fee just for opening certain deposit accounts. There are fees to conduct transactions and penalty fees if you make a late payment. Some fees apply to all customers, and some are waived based on your bank relationship, assets and liabilities or tiered volume pricing.
We offer some useful tips to lower your bank fees:
Examine your bank statements carefully to understand your services and the fees that accompany them. Banks must disclose their fees as well as provide advance notice to customers before increasing them. New fee announcements may appear on your account statement, on the bank website and/or in an email notification delivered through your online banking portal.
Fee notifications are easy to overlook, so make a point of looking for them. Major corporate banks usually increase their fees annually in January or February and may announce their intentions a few months prior. For the larger banks, the increases usually show up for the first time in your February statements.
Most banks set up vertical industry segments as part of their go-to-market strategy. They do this to concentrate their expertise in each area and provide more customized services. However, if your business falls into the wrong silo, it can cost you.
We have had clients in the real estate segment, just because they own their buildings—even though their businesses have nothing to do with the commercial real estate segment. Healthcare is another money-intensive segment that involves higher service fees. SIB was able to help one insurance client reduce fees by getting it out of the healthcare vertical where the bank had placed it. It was then put into a better-suited commercial vertical. The move saved thousands of dollars per month, because the client became eligible for lower rates on its bank services.
Based on your banking activity, there may be room for negotiation, but you need to pick your battles carefully. All bank fees can be negotiated, but the margins are smaller on some fees. Fees tied to employee labor or brick-and-mortar branches can be negotiated but not to the same degree as other automated/electronic transactions. Electronic transactions cost the bank the same whether there is one or 1,000 of them; these costs are more easily negotiated.
Be prepared to adjust your own operational behavior to lessen overall fees. I had a customer who wrote 1,500 checks per month until I pointed out that a check costs a couple of dollars to process from end to end; an ACH payment costs less than a dollar. When the customer changed to ACH payments, he paid far less in fees, and the bank benefited from a process improvement that cost them less, too. This was a win-win for both sides of the relationship.
Take a close look at the services you use and what each costs. Then look at your volume of usage for each of those services. The deeper your relationship with the bank and the more services you use, the greater your bargaining power. Think about which service fees you really want changed versus the ones you can live with. Your banker cannot adjust all your fees, but if you are prepared to cave on a few, you will have better success with the important ones.
Know your stuff and prepare ahead of time. Wire transfers may range in price from $17 to $80, depending on the bank and your volume. If you are paying $17 and reach out with a benchmark of $10, the bank may say that’s too low. If they come back with $15, you will have achieved a lower rate. Two dollars may not seem like a lot, but if you do substantial wire-transfer volume, your savings are significant. If you don’t have big volume, you are better off negotiating a different fee that you use more often.
You want your company to receive money as fast as it can, but you want to disburse the payables as slowly as possible. The gap in between is liquidity, and you want to maximize it. If possible, you want to earn a rebate on any money going out. You can pay your vendors with a check, or you might pay (if your bank doesn’t charge you extra) with a credit card that gives you a cash rebate. That way you are paying your vendor while getting some money back.
Another way to preserve liquidity is to work with a third-party company to process and pay your bills for you. Instead of writing a check for each of 1,000 accounts, you make one ACH payment to the third-party company who then pays all your bills on time for you. You hold onto your money longer, save on late fees and lighten the load for your accounts payable staff. If that third party offers to review your bills for errors and potential rate savings, you save even more money.
No one wants to jeopardize a strong bank relationship, After years of working together, business managers get attached to their banking relationships and the bankers who serve them. They like doing business with people they know and enjoy perks such as fancy restaurant meals or tickets to the big game. However, if you are paying too much for bank fees, those perks lose some of their luster.
It’s important to understand that a solid long term relationship is no guarantee your business is getting the best bank rates. It is an industry best practice to review your banking relationships and fees periodically. However, most business managers do not have the time or the database to achieve best-in-class pricing on their own.
When you hire a trusted and experienced treasury consultant, you partner with someone who advocates for your business while understanding the value you place on your bank relationship. The right consultant understands your business’ financial goals and how you use your bank and its services. He or she knows the fee benchmarks for banking relationships similar to yours as well as the industry secrets that come only with extended treasury experience.
Sometimes the best way to get what you pay for—and preserve your bank relationship—is to let an expert intervene on your behalf. The bank appreciates talking to someone who knows the ins and outs of treasury management. A consultant who takes the time to understand how your business uses its banking services adds value to the conversation—and that leaves happy customers on both sides of the bank equation.
Finley Horner, Vice President of Treasury Management at SIB Fixed Cost Reduction, has more than 30 years of experience providing strategic cash management and operational best practices expertise to businesses. Having worked on both sides of the treasury table, he drives significant client savings by negotiating competitive bank fees and optimized treasury service levels.
Contact us today to learn how SIB can save your business money on bank fees as well as 90+ other categories of spend. If we find nothing, you pay nothing.