How To Manage Your Bank

It is no secret that business bank accounts are continually assessed, call it credit score, behavioural score or financial rating it is no different to what you do as a business as to those who take credit from you.

This is NOT a new phenomenon, for many years this was undertaken by hand, now it is fully automated. What is different is that with more and more customers in a competitive banking environment heavier reliance has to be taken on such systems and in general the risk programs built into the scoring of accounts has proved more accurate with a lower bad debt ratio than personal judgement.

Agree with it or not, credit scoring is here to stay. The decisions are yes, no, or refer to a manager! “Computer says no!” is just a nice way to de-personalise the decision;
the computer is doing what man has told it to do.

At the smaller end of the market, decisions are driven almost entirely by the credit  score. Further up the scale, no is still no but more personal assessment comes into place to justify amending the automated decision. Further up still, more traditional assessments can be made provided the customer can provide accurate and meaningful management information.

However in all cases there are levels at which a low score cannot be explained away and may result in the bank looking for an exit route for the relationship.

Account scores are not only seen to reflect the financial pressures on the business but can reflect the management quality and control of the management over the business. If you can not manage something as simple as the bank account, what chance has the management of exercising control of the business and planning or the business?

The prime areas that affect credit ratings:

  • Utilisation of the overdraft facilities (including uncleared position)
  • Facility level in relationship to the turnover
  • Returned items
  • Regular payments into the account
  • Generic business data (in particular when requesting new or increased facilities)
  • Business/market sector

So if you want your bank to be there for you in your hour of need, a good credit rating will not guarantee facilities but will mean that you will be listened to, help your bank to help you. Here are some golden rules:

Review your account daily with Internet banking, keep strictly below the limit or in credit if no agreed facilities exist.

  • Do not constantly use the maximum overdraft.
  • Solid core borrowing should be converted to a structured loan
  • Returned cheques and unpaid direct debits and standing orders.

 

Extract from full version supplied to clients. Copyright MJR Business Support Limited