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How to Minimise Bank Charges

04/02/2010

The Supreme Court's rejection of the Office of Fair Trading's challenge to excessive personal bank charges also means the prospect of an attack on business banking charges has vanished. Emma Allen finds out what you can do to minimise or avoid business banking charges

When times are tough, being forced to pay a penalty for an unpaid cheque or for going overdrawn can seem harsh. However, most firms with business banking facilities are likely to be charged fees by their banks simply for using their services.

This means that even if businesses do stay within their agreed credit limits, banks generally charge a monthly or quarterly fee for operating the account. Monthly fees typically range up to £30, but some banks will offer an introductory free period.

Most banks will also impose additional charges for processing transactions like cash and cheques. Separate fees are usually payable for arranging loans and overdrafts, while account holders that exceed their limits will usually incur costly penalties.

Think about your banking needs

So how can you avoid paying excessive fees? According to the British Banking Association (BBA), you need to start by finding the right account – and bank – for your business.

"Weigh up what you need," advises Brian Capon, spokesman for the BBA. "If you deal a lot in cash, you'll probably need a local branch, but if not, consider an Internet-based bank which is likely to charge less for its services."

You should also consider how you make your transactions: do you handle money electronically or do your customers pay by cheque? "Setting up automated payments can be much cheaper than using cash or cheques, while businesses that export or import via Europe may be better off with a Euro account to avoid foreign exchange charges," suggests Capon.

Steer clear of bank penalties

Incidents of businesses being charged substantial fees for going a few pence overdrawn have been widely reported, but there are steps you can take to avoid these charges.

Ensuring there are clear funds in the account to meet payments or agreeing an overdraft limit is the most obvious way. However, if you find yourself in financial difficulty, you should talk to your bank as soon as possible to at least request a hold on further penalties.

There is no legal maximum on what banks can charge, but amounts can vary widely so it is worth comparing lenders. The Co-operative Bank, for instance, will impose a £6 penalty for an inbound unpaid cheque while NatWest makes no charge at all. All banks have to publish their tariffs, including what they charge for unauthorised credit, so ensure you read the small print.

Appeal against charges

Bear in mind you can appeal against bank charges in some instances. Start by raising the issue with your bank. If that fails, small firms can use the free Financial Ombudsman Service (FOS), which takes around eight weeks to make a decision. However, currently only those with a turnover of less than around £1.8 million and fewer than ten employees are eligible to use the service.

While business groups have called on the Government to extend the FOS' role to include small firms with more than ten employees, there are currently no plans in the pipeline. Until things change, the BBA advises larger firms to lodge an appeal directly with their bank.

• For more information about bank charges, visit the BBA website
• To access the Financial Ombudsman Service, visit the website

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