This article appeared in the June 2004 issue of Real Business magazine. It includes a contribution from our managing director, Simon Walters, who can be contacted on 07714 237523

You want to make the bank manager putty in your hands? In that case, you need to know what they want and how they work, says Sarah Perrin.

Does your bank love you? Unless you’re one of those annoyingly fast-growing companies that has oodles of cash (and how many of those are there, exactly?) it’s not always easy. The relationship with a bank can be every bit as fractious as a marriage.

But there are things you can do to become a more attractive banking customer, and to encourage your bank to treat you with the devotion and respect you deserve.

Become a new customer

Banks are businesses, just like you, and they have targets for signing up new customers. You can benefit from this need. The Co-operative Bank is certainly one that is a-courting. In March it launched a bespoke banking package for members of the Federation of Small Businesses. “The current account has free banking for 18 months and on the anniversary of opening the account we will pay a £25 loyalty bonus,” says Ryan O’Neill, the Co-op Bank’s corporate and business banking marketing manager. The package also includes a free-for-life business Visa charge card (i.e. no fees) and discounted business loans.

The Bank of Scotland is also keen to attract new customers, offering a comprehensive account switching service for SMEs called “Easy to Join”. Businesses simply sign an authorisation form and the BoS team will handle all the time-consuming admin concerning direct debits, BACs payments and so on.

Display loyalty

After the first flush of enthusiasm over your new banking relationship, 18 months in you may feel the relationship is becoming jaded. However, be assured that the bank doesn’t want to lose your custom. It costs more to attract a new customer than to keep you on board. Being loyal should deliver advantages for you, so don’t forget to ask. “The big benefit is around the relationship and trust that’s built up over a long period,” says Mike Harding, senior manager, customer recruitment, business banking at Lloyds TSB. “You will build up a credit record with the bank. If you have been a customer for a long while and your account has operated well, your credit rating will be good. Therefore you should be able to get access to lower price finance than someone who has just arrived on the doorstep.”

Abbey National is considering extra rewards for loyalty. “We are looking at possibly reducing the margin we charge on business mortgages the longer customer stays with us,” says John Brooks, Abbey’s head of business banking.

Show growth potential

Of course banks ideally want customers who will grow, because this provides most opportunity for cross-selling of extra services. However, uncontrolled growth that could lead to over-expansion, cashflow shortages and potential failure will not impress. You will need to demonstrate your ability to manage your growth successfully. So how do you do that? See points 4, 5 and 6 in particular.

Present them with a realistic business plan

If you expect to grow, you have to plan for it. This goes for start-ups and established businesses alike. Your business plan must be realistic, however: the bank will not be impressed by transparent over-optimism. “People often get carried away with potential sales,” says Mike Conroy, a manager in business banking at HSBC. “You are much better with a more realistic and pragmatic approach. The bank will be more enthused if you do better than your plan.” That means always beating budgets and managing expectations.

Demonstrate positive cash-flow

If you are lucky enough to be in a cash-generative business, the banks will be reassured about your prospects for continued trading. And while you might think that banks want you to use an overdraft, because they get to charge you fees, that isn’t necessarily the case. There are significant costs associated with managing business customers’ overdrafts. However, it is probably true that businesses that stay in credit attract less attention. “The banks in general tend to simply ignore a lot of businesses which just run along on credit balances and don’t borrow money,” says Abbey’s Brooks. “That’s a crime. It is possible to make as much money from an in-credit customer as it is from a borrowing one.”

Manage your overdraft

If you do need an overdraft, that’s fine. Banks have to lend to make a living. The more they lend, the more the bank earns, says Simon Walters, a director of the part-time finance director service, FD Solutions. However, regular breaching of agreed limits will trigger the bank’s concern. So, potentially, will “hardcore” or “solid” overdrafts that don’t fluctuate between debit and credit but remain an apparently immovable sum month after month.

“When risk departments in banks see hardcore or solid overdraft borrowing they assume it’s hiding all sorts of evils,” says Brooks. The bank might want to talk to you about converting that hardcore overdraft into a form of loan, or generally about whether your cashflow management could be improved.”

Do what you say you will

“It’s all about communication and trust,” says Conroy. “If you say you want a certain overdraft for a month and then repay it in a week, the bank thinks you are pretty switched on. If you say you need two weeks and it takes a month, the less trust banks tend to have.”

If you agree to supply monthly management accounts, do so – and on time.

“A good company is one that provides management accounts normally within 30 days of month end, so we don’t have to chase them,” says Bank of Scotland’s Niven. “Some are better than others.” If management accounts arrive late, the bank may start to worry that there are problems brewing.

Be open and honest

If you have suffered a previous business failure, you shouldn’t necessarily hide the fact. “Some people feel they can’t say to banks that they have failed before in business,” says Harding of Lloyds TSB. “That’s a misconception. If someone comes in and is open and upfront and can say what they learnt from what happened in the past, I count that as a good sign. What I dislike is people who come in and say they had a business that failed, but can’t admit that it was even partly their fault.”

Stay in touch

Banks hate customers who don’t keep them informed of what they are up. If you know you are going to breach your overdraft limit, call the bank. They may agree to put it up, or arrange other supportive finance. “The banks don’t like surprises,” says HSBC’s Conroy. This applies just as much in the good times as the bad, he adds. “Keep the bank in the loop always. If you have the opportunity of a new order coming in, which may mean you need extra working capital, let the bank know. If the order materialises and you contact the bank again, it will already be warmed up to the idea.”

A Friend for Life

Maintaining a relationship with your bank manager is good business. When you’re shopping around for a bank, try to find a manager you get on well with personally – and, ideally, one who specialises in and understands your sector. Once you’ve found them, you should consider sticking with them, even if that means you move from branch to branch – or bank to bank – as their career progresses.

Use direct banking for transactions

Direct banking can mean either telephone banking or using the Internet. Both are more efficient for the bank (and probably you) than doing everything through your bank manager. “Anything that is electronic or self-service is cheaper for the bank,” says the Co-op’s O’Neill, which has recently relaunched its Internet banking service under the name Acumen.

“Making electronic transfers rather than writing cheques is cheaper for the bank and the customer will be more profitable for us. We tend to price our tariffs accordingly, but most of our electronic transactions are free.”

Sign up for multiple products and services

Banks offer a huge range of products to business clients, including loans, leases, hire purchase, other forms of asset-backed finance such as factoring and invoice discounting, commercial mortgages and charge cards. They would like you to sign up for as many as are relevant to your business. “The more products customers have with the bank, the less likely they are to walk,” says the Co-op’s O’Neill. “The word we use is ‘stickiness’.”

The banks promote certain products at different times to tempt you to sign up. “We have a mortgage campaign for commercial mortgages at the moment,” says Abbey’s John Brooks. “All our customers are being offered remortgages with free valuations.”

You may be able to negotiate better deals if you use multiple products from one bank. Abbey, for example, is looking at the feasibility of increasing price discounts in proportion to the number of products a customers uses.

Recommend your bank to other businesses

Banks love customers who refer other businesses to them. “We look at every customer as a potential salesman for us,” says Abbey’s Brooks. “If there’s an owner manager with characteristics that you like, the chances are he knows four or five other people like him.”

Grant Phillips, marketing director for medium business and agriculture at Barclays, is just as keen for Barclays’ business clients to develop an emotional link with their relationship managers and then become the bank’s advocates. He explains: “It’s worth a lot to me to have a customer who will be our advocate and say, ‘I get a great service and great value’ – however the customer defines that – and then talk about it, whether in the pub, over the dinner table on Saturday night or with colleagues at work.”

Though Abbey has looked at paying small financial rewards for referrals, it feels this could demean the relationships it has. Some bank managers might take you out to play golf for the afternoon, on the other hand. But at the very lease, if you’re doing your bank manager a favour, he owes you one, doesn’t he?