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Being up-front with your bank manager can be challenging at the best of times, but it is even more important to be open with them during times of difficulty. Here’s why.
A variety of views have been expressed over the last few months as to whether government efforts to kick start lending to small businesses have been successful. Some would have us believe that funds are flowing freely, while the experience of many in the retail news industry tells a completely different story. Banks can be extremely intimidating to deal with and many retail business owners will have stories of great frustration about their relationship with their banks. In years gone by, your relationship with your bank manager was far more personal, but this has given way to a more clinical and distant approach.
As a result, modern relationship managers can often seem aloof, unapproachable, and it can feel as if you are on a conveyor belt of constantly changing faces as staff move around to other areas and jobs. And let’s face it, occasionally you just don’t get on with your bank manager! So what should you do if you find yourself in a difficult financial position, one where your business needs that extra bit of help, and what general advice is available to help business owners deal with their bank?
As a starting point, all banks will know generally what the trading position of any business is. Modern computer systems monitor patterns of deposits and expenditure and a computerised flag is always thrown up if something unusual is spotted. However, if a business stays within overdraft limits they will not necessarily spot anything wrong, and the business owner will see a problem forming long before the bank. Good communication with your bank is therefore critical. When we face tough financial times there is a tendency for us to bury our heads in the sand.
Not dealing with the issue seems easier than facing it. But this will not make a problem go away and, while trying to avoid communication with your bank may seem the right course of action, you should, in fact, be doing the exact opposite. If you think that you are about to go over an overdraft limit, the first thing to do is to make contact with your relationship manager before a cheque bounces or a direct debit is returned. Banks can only act or advise you on the basis of the information they have available and if they can’t speak to you, they are not in a position to make an informed decision as to what action they need to take. In the absence of information or communication from you, they are likely to take the only action available to them, which is to return an item. If you are intimidated by the prospect of speaking to them and are not proactive, they are likely to try and contact you. This is certainly nothing to worry about at this stage.
The likelihood is that they want to see if there is anything they can do to help. Most banks do not want to return items, but this is sometimes the only way to get their customers’ attention, and in most cases it works. Charges for returned items can be expensive and can affect future applications for any type of finance. When you speak to your bank manager, always be totally honest and open about what has caused the issue. Be prepared to provide supporting information and try to work out what you need to do to ensure the problem doesn’t escalate. If you do ask for additional funding or support, always be prepared to give evidence of cash flow and budgets, how the money would be used and how it will help support your business.
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