Banks must communicate with SMEs

Tuesday, 3 April, 2012

There is nothing more important to a small business trying to survive than effective communication with banks.

When something goes wrong in a business the chances are that poor communication has had something to do with it. A supplier may have been given an inaccurate order, a customer may feel neglected, employees may not be receiving adequate feedback on their performance. These things can be serious enough but, when poor communication is with the bank, the situation can become life threatening for a business.

I have said this many times before but it needs to be repeated. Without a banking relationship manager there will inevitably be a breakdown in communication between a business and its bank. In buoyant economic times this may simply mean the business is not being provided with the most appropriate type of facility, maybe it is bearing a higher interest rate that it needs to. In difficult economic times the consequences can be dire, as I have recently witnessed.

It is just not acceptable for a medium sized business to be left without a relationship manager for months on end. It is even less acceptable that this should occur immediately after the business has requested an increase in facilities. Assistant managers and relieving manages tend not to make decisions. In this particular case no decision had been made six months after the original request despite repeated assurances from the assistant manager that it would all be fine. The next thing the business owner knew was that the business had been passed to a division of the bank with a euphemistic title containing the work ‘strategic ‘ but clearly meaning something far more sinister for the business.

The bank’s “strategy” was to engage an investigating accountant to review the financial position, at considerable expense, and of absolutely no value, to the business. In addition the review tied up internal resources and heaped enormous stress on the business owner and staff at a time when they needed to focus on managing the business within the existing finance facilities.

There had been no prior communication from the bank. No one had explained why the request for additional facilities had not been answered and why the bank had seen fit to escalate this simple request to such a dramatic and threatening level. I am sure that if the business had retained its relationship manager this situation would not have arisen. Furthermore if someone had simply sat down with the customer and explained that the bank could not see fit at this time to extend the facilities, the customer would have accepted this and moved on to Plan B. Indeed there was a Plan B which was eventually implemented, resulting not only in the additional funds required for working capital but also in the repayment of the existing bank debt. However because of the lack of communication from the bank, Plan B was implemented 6 months later than it should have been and for some businesses such a delay could well be fatal. This treatment of a business which had done nothing wrong and had been loyal to its bank for decades is simply appalling.

While I have focused on a particular case, this is really just an example of what all of us who work with SMEs see all too often when a bank fails to provide a line of communication to its customers. Many businesses never see a relationship manager and have to phone an ineffective call centre to deal with their finances. It’s not good enough.

Parts of our economy are going through very tough times and will continue to do so while consumer confidence remains weak. This is the time when business owners should be talking to their banks. They need to be able to demonstrate that they are effectively managing their business, are taking steps to control costs, and have a strategy to deal with the changing economy.

Because we understand financial issues, accountants are the natural bridge between a business and its bank. An important part of our role is to make sure the business and the bank are on the same page – that expectations on both sides are being clearly articulated and managed, that the business does not commit to lending covenants that it can’t keep; that any breaches that do occur are notified to the bank early, and explained, and that budgets and forecasts have integrity.

In this way we act as interpreters for the business in its communication with the bank, but even we can’t do this if there is not someone at the bank to talk to. Most of us have networks of bankers who are keen for our referrals. Because of this we often have influence that an individual business may not have. Therefore when we hear of a business being badly treated by a bank it is important that we convey this to the appropriate banker in our network.

While we can’t change the economic drivers of the banks’ decision- making, we can challenge those banks which purport to service SMEs to guarantee that the businesses we refer to them will be provided with a relationship manager who will ensure an ongoing line of communication. Surely that is not too much to ask.

Time to have fun

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