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What Your Banker Forgot To Tell You

Beginner's tip: Even if your company has only a couple of different accounts, you may find yourself paying for unnecessary services as your business grows and changes. To avoid excessive costs, list every single service provided by each one of your accounts and make certain your company actually requires it in order to do business.

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Step three: Question the benefit of each account reconcilement and disbursement service. When you sign up for a new depository account, all kinds of services seem necessary -- even when they're not. Quigley and Suchocki found that Kitchell was paying for an account reconcilement report on one account that had such a small volume of checks that the company could have handled the task internally. Then there was another account that typically maintained a zero balance and yet still received a balance report each month. The report just kept saying zero.

"Because nobody had really monitored the accounts, no one had questioned the importance of any of their reports and services," Suchocki says. When those and other services were eliminated, the savings were estimated at up to $8,000 annually.

Lesson: To evaluate the importance of different checking-account services, analyze check-deposit patterns over a period of several months.

Beginner's tip: When your company is small or starting out, its safest bet is to sign up for as few depository services as necessary. If account activity later increases to the point where reconcilement, balance reporting, or disbursement controls make sense, you can always add the needed service then.

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Step four: Aggressively look for ways to cut costs. Here's the kind of secret that only a banker (or a former banker) can tell you. "Every bank charges its customers a fee that basically covers its share of FDIC insurance. But banks calculate those fees in different ways, and if you learn your bank's method, you may be able to take steps to reduce your costs," Suchocki says.

First learn how your FDIC fees are calculated: they might be tied to your company's average available balance over the course of a month or its balance on the last working day of the quarter or of the month. "If you know when the fee is assessed, you can reduce your cash balances to the minimum amount you need to keep checks from bouncing," Suchocki advises. "Invest the excess cash in a 24-hour instrument and return it to your account the day after FDIC charges are assessed."

There's nothing illegal or difficult about that type of cash-management technique, and it saved Kitchell Contractors about $3,000 a year.

Lesson: Look for ways to reduce your own FDIC insurance costs. (If your bank's FDIC assessment is tied to your monthly average account balance, juggling funds around won't do -- you'll have to decide whether you want to maintain a skimpy balance throughout the month.)

Beginner's tip: Don't assume FDIC savings are available only to cash-rich companies. So long as your company maintains cash balances to cover its payroll and accounts payable, you stand to benefit from lowering your FDIC costs.

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Step five: Put total service fees into perspective. Before Kitchell's banking checkup, Quigley had prided himself on keeping large cash balances on deposit. "We didn't have to pay any service fees, so long as we kept big enough balances in reserve."

But that can be a costly mistake. "Once you're certain that you've taken reasonable steps to eliminate unnecessary fees and cut back on others," Suchocki says, "you'll probably be better off maintaining minimum account balances and then paying your bank fees outright." He adds, "Companies usually can earn much more by investing excess funds than they can save by avoiding bank fees."

Quigley estimates that this strategy has increased Kitchell's income by about $7,000 per year. "We now take a payout of excess cash each day and invest it in a range of options -- our investment account, bank repurchase agreements, and the like."

Lesson: Companies that generate significant amounts of excess cash, even if only on a seasonal basis, should look for an investment adviser who can help them manage treasury, equity, or other investments (unless they're large enough to employ an investment-oriented chief financial officer).

Beginner's tip: If your company lacks the internal financial expertise for active cash management and can't afford to hire a broker, then at least set up a sweep account. For fees of $50 to $100 monthly, it will invest each day's excess funds in a money-market account.

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Step six: Schedule follow-up checkups. Having been through the process once, Quigley says he's "learned how ignorant we really were about banking. Now we're determined to take control of the relationship and make sure we receive and pay for only the services we need."

Lesson: If your banker objects to your company's checkups or tries to discourage you from cutting back on excessive services and fees, that may be symptomatic of other problems with the bank. A good bank will be comfortable with a company's efforts to streamline its accounts.

Beginner's tip: If your banker objects to the streamlining, and your banking options are limited because the only way you'll get a credit line is to bring all your business to one local bank, then your only means of keeping costs down is by eliminating as many services as you can.

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FOUR BANKING MYTHS

Don't believe everything your banker tells you. Here are four myths that may keep your banking costs unnecessarily high:

1. The more services and accounts, the better. "Compare your company's banking network to your family's," advises ex-banker Dennis Suchocki. "You wouldn't set up one account to pay the mortgage and another to pay the electric bill with." Companies can manage much of their banking affairs a lot more cost-effectively with just a few well-coordinated accounts.

2. You're better off receiving every banking report you can. Not so, notes Joe Quigley, vice-president of finance at Kitchell Contractors. "We used to get one report detailing our paid checks in addition to our monthly statement, which gave us the same information. And we were charged for both."

3. All fees are the same. In fact, most accounts assess both maintenance fees and item fees. Here's the difference: maintenance fees are basically a monthly service charge that is assessed whether or not you actually use the account; item fees are levied on each transaction that occurs within the account, such as handling a cashier's check or wire transfer. Once you understand your account's usage pattern, you may be able to negotiate for lower or waived fees on certain transactions if they're either unusually high or unusually low, or to close accounts altogether if their usage levels fail to justify maintenance fees.

4. You have to switch banks to lower costs. That's usually not the case, as Kitchell's experience proved. "Growth companies usually wind up banking wherever they can get the best credit arrangement, so they can't aggressively shop around for the best fee structure," says Suchocki. "What they can do instead is aggressively analyze existing banking patterns."

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