Managing Cash Flow

Bank Issues and Concerns 31
or never required. Most banks have the necessary connections to provide
the services occasionally needed, even if they do not provide them directly.
• Performance. The bank needs to perform well. For instance, deposits
need to clear quickly, checks must be processed properly, loan requests
need to be responded to quickly and positively, reports and statements
must be timely and accurate, transactions must be handled as requested,
and the bank must show sincere interest and concern. Recurrent processing
errors, inappropriate ISF (insufficient funds) stoppages, and the
like. will be detrimental to the company’s business image and should
not be tolerated.
• Location. Dealing with a distant bank requires that deposits be mailed,
running the risk of loss within the postal system. This will be a major
aggravation from which to recover. A local bank means deposits can be
made directly, saving time and potential irritation. Having a branch, at
least, near the business can be a considerable time and aggravation saver,
particularly with items such as deposits, payroll check processing and
cashing, needs for cash, and general communication.
• Costs. In most geographic areas, the bank charges will be reasonably consistent
due to competitive pressures. Therefore, many times, cost becomes
a nonissue when deciding among competing banks. Typically, a single
higher cost for a service will be offset by a lower cost for another service
so that competing banks tend to equal out. While important to review
carefully, costs tend typically not to be significant deciding factors.
Bank Relationships
There are no free lunches. The company’s senior managers must recognize that
bank services have costs associated with them and these must be factored into the
costs of doing business. Historically, bank compensation was handled almost
exclusively through the maintenance of balances in the bank. With low and relatively
stable interest rates, the opportunity costs of these captive balances were
minimal and no one paid much attention to them. But with the extraordinarily
high rates that occurred in the late 1970s and early 1980s, interest costs were no
longer insignificant. Even though rates have periodically returned to lower levels,
bank costs have not moved back into obscurity – they must be identified, quantified,
and monitored just as any other service cost. The simple expedient of trading
banks and playing one off against another is effective only for a limited time.
It is better to find the “right” bank and build a lasting and stable relationship. The
mutual objective of the customer and the bank should be to assure a reasonable
level of compensation for credit and noncredit services while not paying more
than the going rate.
Another issue that must be managed is the determination of the number of
banks with which to maintain relationships. The answer to this question will be