There was a time when we used to think of our relationship with our bank as one for life. There was a loyalty to a particular bank and a pride in the length of the relationship.
This was when a bank manager was a pillar of the local community and was in the branch until retirement. This man knew you, your family, your business and probably many of your customers and suppliers if they were local. You really had a relationship with him rather than the bank. You were treated and regarded as an individual and felt valued as a customer.
How times have changed...
Banks and their personnel seem to change with the wind. There are no feelings of being valued, if anything there are often feelings of being ignored or worse, mistreated. So loyalty from bank customers has largely disappeared. But is this a bad thing?
As they have largely taken service out of the equation, banks now have to compete on charges and terms not only with other banks but with a host of other financial service providers.
A recent article in the FT expounded the benefits of having multiple banking relationships, particularly for exporters or businesses managing foreign exchange risks. Properly managed, using a number of banks could provide a business with huge savings in transaction costs and exchange rate charges.
A growing business may find that having all their financial eggs in one basket puts them at a definite disadvantage. Any lender will consider their aggregated lending and may restrict advances if they feel that a company's financial performance or balance sheet do not warrant an increase, whereas a business is more likely to get greater flexibility from a spread of providers.
For businesses that are suffering, there may also be disadvantages to maintaining a single banking relationship. If the financial risk is concentrated in one bank, then this bank will review the position based on their overall liability to the company. They will also feel that they are in a position of power as they hold all the cards, and could be dictatorial in their approach to a ‘problem’ client. Whereas if the financial risk is spread throughout a number of organisations then they are more likely to be understanding and tolerant as their individual liabilities are less.
Nowadays, there is no reason why a business shouldn’t have a trade finance facility with one bank, their mortgage with another and Invoice Finance with another still. In fact, it is only prudent for a business to review its financial arrangements on a regular basis.
In a time when banking relationships are so fluid it makes sense to look at spreading your financial suppliers and constantly reviewing service levels, charges and terms.