Demystifying Commercial Banking

Relationship Building With Financial Institutions

Having moved on from the formerly held tradition that banks only keep people’s money, any progressive individual whether in business or not should have by now realized that banks exist for more. One must therefore seek to have a healthy relationship with these institutions of which to attain does not come overnight. Making the bank your partner just like in the marriage institution requires commitment and high levels of financial discipline. It is not an overnight affair. It takes time. As finance intermediaries, if well utilized financial institutions exist as the most probable catalysts that help spur the economic growth of a country and wealth creation at the individual level. A bank should be viewed as a partner in financial progress and not as a master or an entity created to exploit the populace.

The start of engagement or entering into a legal contractual engagement with a financial institution is most of the time the point at which one opens an account. From the client side, a bank account is used to document the cash flows which consists of the debit and credit transactions and the final account balances. The banker on their side has got a lot to deduce from the patterns reflected in these data. It is the recorded financial history of their client and a starting point of how to nature the relationship. Any extra information provided by the individual must always be backed up by formal evidence more often in the form of verified documents such as a pay slip, invoice or official receipts. There is a possibility of one running a side hustle with cash transactions not reflected in the account statement. For example, an account reflecting one’s monthly salary only but claiming to have a side business that involves the selling of eggs to a local restaurant and is seeking its inclusion in their cash flows, In this case the bank would demand to sight documents such as, LPOs, invoices, payment receipts and clear demonstration as to the application of the proceeds from the same. Mere oral information with no official documentary backing may not be easily admissible. This is one of the reasons why many businesses that carry on cash transactions without much documentation hardly sustain a long-term banking relationship. It is not likely to go beyond the basics of mere debit and credit transactions on one’s bank account. It thus behooves one when involved in business where possible, to have a clear method of receipting and invoicing making the accounting and transaction authentication process much easier. Sometimes figures without the supportive documentation may just be reduced to mere numbers that are just hanging alone up there in the account.

The advice to anyone who is seeking to enrich their mutual relationship with the bank is to get it right from the start by channeling your income or business proceeds through the bank account. It is professionally advised to also make your payments through the same. The day of truth for this will come when your management accounts greatly vary from what the bank statement is reflecting. Therefore, keep cash dealings at the bare minimum. Remember when bounced, items such as cheques, standing orders and other inward remittances is a matter that is looked at with great concern. Some financial institutions close accounts with a notoriety for such when it reaches unacceptable levels. A few exceptions however would be considered for those that bounce for technical reasons, although this should still be avoided at all costs as generally unpaid items do not reflect well on the individual or entity. It is from all this account history that a banker can determine what kind of financial activity, the individual is involved in and the future it portends. This is the data upon which financial institutions rely in determining one’s level of financial relationship with the bank(s). Remember any mismatch in the documentary presentation and information orally provided calls for further due diligence. It thus calls for one to be counterchecking any information being relayed ensuring that it is free from errors. There is minimum risk in full disclosure since all bank officials are bound by an oath never to disclose client information. Any breaches not only amount to gross misconduct but also attract legal action with heavy penalties.

The banking industry is a very crucial one for any country’s economy thus very strictly regulated with hard and fast rules. It is for its sensitive nature that strict legality and formality is adhered to in this industry. In most countries, a body is appointed to closely monitor and supervise banks. In the USA it is the federal reserve while in Kenya it is the Central bank. Banks only recognize legal entities in their dealings. The bank ledger, therefore, has got accounts with two naming categories, either as a registered entity or personal. Few exceptions however exist for those accounts that need higher confidentiality. In such cases special identifying codes are used within the ledger, however, the bank must keep hardcopy details of the names behind them. Any entity not meeting the above conditions may not be able to open a bank account and transact under the current banking legislation. A personal income or savings account is better served when operated in the individuals’ name. When engaged in business activity, it is recommended that one keeps their accounts separate from the business ones for proper accountability, monitoring and generally as part of good business practice. A good relationship with the bank assures the financier that the management is professional in its dealings. Trading in your name is still acceptable but should only be allowed to exist at the business infancy stage. Most financial institutions are gradually discouraging this trend thus the need to quickly evolve towards a separately registered entity at the earliest opportunity. Better still if capital is available start off with one that is already registered. There will be a requirement to give a brief of your business profile at the account opening stage. Frequent variations in the business activity you engage in invites many questions but consistency portrays an image of stability and horned business skills. A jack of all trades may end up being a master of none thus leading to the exposure of a potential entrepreneur’s weaknesses. Business acumen is easier determined when focused on a single business area. It becomes very challenging when for example one operates an account in which he/she is trading in fish, supplying stationery, operating a butchery, selling grains as well as building roads on contract. It becomes complex unless the entities are very distinct with separate management boards and operate different accounts.

Legal and good banking practice demands that a business entity has a physical office or location from where official business operations are carried out and this should be for a reasonable time. Regularly update the bank with your current contact details e.g. e-mail, post box, telephone and all others for ease of access. It is a sure sign of stability and differentiates one’s business from being merely seen as a briefcase company. Lack of this is a high risk to many a lender. Always ensure compliance with the law by ensuring all company legal documentation and other statutory obligations have been fully met and current before presenting them to your banker. The better if provided to the banker without prompting but as and when they are due and complied with e g. rate payment receipts, renewed licenses, periodical valuation reports of property held as collateral, management accounts etc. These at times may be bulky and involving but due diligence requires that any legal transaction must be above board and it makes any facility request processes faster. Many bank clients usually experience facility disbursement delays at this point. Banks are usually extremely cautious since their main commodity of trade is liquid cash and once exchanged is not easily recoverable thus the apparent bureaucracy.

The area of finance has got such a wide scope and cannot be exhausted within a few pages. The above are just some of the basics gleaned from what the basic indicators of a sound relationship between a client and a bank should look like.

...

Let me have your questions and feedback in the comments box or e-mail: thebanjan.blog@gmail.com