Communicating with your bank

Even in the middle of the deepest financial crisis in living memory, UK banks are continuing to support their business customers. But as Direction discovers, communication is the key to help them help you.

From the crisis in the US homes market through to the failure of a string of major banks, the travails of the financial sector have dominated television, radio and the press over the last few months. Amid the chaos, the question that businesses have been asking themselves is: “Will my bank be willing and able to extend credit”?

Times are tough, and as Peter Cooper, Head of London Restructuring and Recovery team at Baker Tilly, observes, banks have become more cautious. “Credit is a limited resource,” he says, “and currently banks have less flexibility.”

Nevertheless, despite the very real problems afflicting the sector, Cooper says banks remain committed to supporting business customers. “All the signs are that UK banks are very much open for business,” he says.

It's good to talk

But no one running a business should underestimate the importance of maintaining a good relationship with their bank. According to Cooper, regular communication is the key.

“Growing businesses should be in constant contact with their banks,” he says. “And in periods of stability, you should still be talking to them every quarter or every six months.”

Communication is particularly important when businesses are experiencing financial difficulties. “It’s vital to let the bank know about any potential problems as early as possible,” says Cooper. “If you call on a Thursday and say that you haven’t got enough money to pay your employees on the following Friday, it’s always going to be difficult. However, if the bank is briefed well in advance, it’s far more likely to be able to offer support.”

Predicting a financial shortfall is often a matter of reading the market. Say a firm of solicitors is dependent on conveyancing, if the housing market stalls, as is the case at the moment, it’s safe to say that the firm’s revenues will suffer and that should certainly be conveyed to the bank.

The fear factor

There may well be a temptation to sweep the problem under the carpet.  “Businesses are often frightened to approach the bank in case the lender withdraws funding,” says Cooper. “But, generally, banks are reluctant to pull the plug, as it’s not in their interest.”

Of course, not all financial problems are due to external factors. For example, poor cash-flow management or bad strategic decisions may be the issue, but the rule is the same.

“Stakeholders should be informed of any problems as soon as they arise, and the bank should be treated as a major stakeholder,” says Cooper.

Banks have amassed a huge amount of expertise in turning difficult financial situations round, so if you work closely with them and other advisors, the chances of a positive outcome are far greater.