Should supply chain management (SCM) stop when dealing with your banks?
The short answer is no. Businesses large and small can reduce banking costs by including their banking relationships in their SCM analysis. Firms need to ask questions of their bank(s) to understand all the conflicting forces that needlessly increase bank costs, with the aim to cut costs.
Banking products and services have varying costs and charges, but don’t expect banks to volunteer to highlight this. It’s your job to negotiate the lowest cost mechanism. To do this you need to understand their minimum costs, what services they want to offer cheaply and also what services are costly for them to provide.
Modern banking is not a “one-size fits all approach”, so don’t assume all banks will charge the same. Equally, businesses have different structures, varying degrees of financial strength and use banks in different ways.
You need to ask your bank how it views your company. Ask if they understand the strengths of your business and educate them on any operational risks you may be exposed to and how you are mitigating these. Provide them with up-to-date financial information, how you are achieving your targets and budgets and your future plans. Your aim is to correct any misconceptions of your business and educate the bank about how well you are running it. Don’t expect them to do this without your help. It’s your company, so you need to shout for it.
Once this education is complete it’s time to discuss their pricing. Ask why lending margins and fees are set at current levels and discuss other tariffs and how they can be reduced. This isn’t as crazy as it sounds, and banks will welcome this constructive debate. It’s a very important area for you to understand and one which banks struggle to explain to their customers. You can undertake this exercise yourself or get outside help. Expect to hear some harsh truths from the bank on your business and then work (with them) to address them. You will be the ultimate benefactor. And finally, take time to benchmark your banking relationships with your peers and similar sized UK firms.
☛ Ben Martin is CEO at bmbal. You can benchmark your banking relationship via the free Business Banking Measured online assessment, which has identified banking savings of £56,000 per year (on average) per business, here.