My latest contribution to the Law Society Management Section Newsletter (Feb 2019)
With the RBS Business Banking Switch launching on 25 February, more firms than ever will be weighing up a move to a new bank. Sara Hutton explains what you need to consider.
Law firms are loyal customers, most have been with the same bank for decades, despite some experiencing poor service or lack of support. With the right bank your business can improve operational efficiency, reduce costs and be free to deliver financial plans, knowing the right level and structure of facilities are in place. A good relationship manager can support you in other ways, widening your network of contacts, sharing knowledge of the local market or introducing you to potential business opportunities.
It is well worth investing the time and effort to secure the right banking partner
But with limited or no experience of changing banks, how can you find the right bank and complete the move?
The key to success is to identify your requirements and manage the process like any other business critical project, with good planning and implementation. All too often, I have seen the process rumble on for months and sometimes years because the law firm has not been clear in their requirements, involved too many partners in the decision, or failed to involve the key users of the bank.
Take charge of the process, be clear and well organised.
With the right person taking responsibility to deliver the project, clarity of requirements and clear communication, a banking switch can be achieved swiftly and smoothly.
Eight steps to move banks successfully
- Rank the products and services you require, identifying those from business critical to ‘nice to have’, remembering that not all have to be provided by the same bank.
- Seek out the banks in your area which best fit the bill. Consider recommendations from your accountant, other law firms, or even your clients and banks where you have existing relationships. It is also worth casting your net wider, banks are changing fast and newer banks are worth considering.
- Meet with several banks to assess their suitability. Ensure you see the most appropriate person to answer your questions, ideally the local relationship manager. It is important to assess their ability to support your business plans and check that they have both the product and service capability to meet your requirements. Remember you are looking for a key supplier to work with for a number of years, so both the relationship manager, and the bank’s culture and values must be a good fit for your firm.
- Ideally, select two or three banks from those you meet.
- Prepare a banking proposal asking for a credit-backed offer for lending facilities and pricing for the other services. The proposal must contain your requirements, business plan and financial information. Providing a comprehensive document at this stage prevents wasted time in meetings, lengthy email exchanges and misunderstandings. Bank staff may have limited knowledge or experience of law firms, so it is vital to ensure they have a coherent picture of your business on which to base their offer.
- Assess the banks’ responses and decide which best fits your criteria.
- Your chosen bank will require additional information to firm up the agreement in respect of lending facilities, this process includes completing the account opening and know your customer processes. Remember they have regulators too, with their own mandatory requirements.
- Lending facilities will require facility agreements and security documentation to be signed. Banking operations must include set-up and training for online banking and payment capability. All the clearing banks are members of the Current Account Switching Service which means you’ll receive support from both your current and new bank with moving regular payments and your account balances. However, I recommend you keep your old office and general client account, together with your online access, for at least one month – and possibly up to three months – after completing the transfer.
Remember, not everyone needs to be involved in the process!
Key facts to help you find the right banking partner for your firm
Banks have differing lending appetites to law firms. Some have clear sector specific policies, others work to the general principles which focus on the ability of the business to generate profit and cash sufficient to service the debt. LLPs and limited companies should expect to give mortgage debentures and, in many cases, member / directors personal guarantees. An increasing number of banks have limited or no appetite to fund personal injury or other conditional fee agreements work.
Banks have different requirements for credit balances which are reflected in their deposit interest rates. These fluctuate with their changing requirements, so are worth keeping under review. Many smaller or newer banks are keen to attract client funds, offer better rates and seem more able to cope with special requirements, such as Court of Protection accounts.
Processing payments online
Online services from all banks continue to improve both in terms of functionality and reliability. If you are a higher volume user of Clearing House Automated Payment System or faster payments (100+ per week), make thorough enquiries of your potential bank and ask to speak to law firms already using their system.
Pricing does vary. Bank service charges are levied on all business customers, so law firms pay for activity through their office accounts (processing cheques is particularly expensive). Charges also apply for payments and online banking, albeit discounts are negotiated for high volumes. Most banks offer a free period to new customers.
Banks are forbidden from linking one product to the compulsory taking of another (‘bundling’) so it is worth considering the benefits of using more than one supplier for your requirements. This is more difficult when borrowing, as all lenders will seek recourse to the firm’s assets and/or personal guarantees.
It is well worth investing the time and effort to secure the right banking partner; the wrong bank can damage a firm’s ability to exploit its potential, reduce its profits by forcing the use of expensive debt, or even worse, impede its ability to operate.
Finally, if you intend to move in 2019, the business banking market will be busy managing the impact of the RBS project, with both scheme and non-scheme banks likely to seize the opportunity to win more customers from RBS. This will inevitably cause pressure on the operational capabilities of some banks and possibly impact their appetite to lend if credit books grow too rapidly.
Sara Hutton is an experienced former bank manager who now advises law firms on funding strategies and structuring to achieve their business objectives.