Banking on a good deal

One skirmish in the battle against bureaucracy has recently been won with the introduction of new rules to make switching banks and getting a better deal less arduous for businesses.

The "three-day" directive from the Office of Fair Trading (OFT) came into force on December 31 2003, and sets banks targets related to the switching of current accounts for small and medium-sized enterprises. The move follows a Competition Commission probe that heavily criticised the "big four" banks for making excess profits and effectively operating a monopoly.

Banks were forced to offer small businesses interest on current accounts or free banking, and timescales were set out for switching accounts, which were accepted by the OFT, and Britain's eight biggest banks - AIB Group, Bank of Ireland, Barclays, Clydesdale Bank, HSBC, LloydsTSB, Northern Bank, HBOS and Royal Bank of Scotland - have undertaken to abide by them.

Now, if you want to move your business accounts, your present bank must provide your new bank with details of regular payment instructions (RPIs) within three working days of a request to switch. Your balance and payment instructions must be transferred within four days. If your bank fails to meet these deadlines it must pay you compensation. A far cry from the old days, when switching could take weeks.

The move is designed to open up competition and persuade more small businesses to shop around for a better deal. The Department of Trade and Industry estimates there are 3.7 million SMEs in the UK. Of these, 83% bank with the big four and pay charges of up to £1,000 a year.

But if there are better deals to be had, why aren't more businesses looking for them?

Inertia and apprehension would appear to be the answer, rather than loyalty. Switching accounts has in the past proved to be notoriously tricky and time consuming. A survey of 18,000 members of the Federation of Small Businesses (FSB) in 2002 (the latest figures) revealed widespread dissatisfaction with the process. Of the respondents who expressed a clear opinion, 5% had had a "positive" experience switching banks, compared with 30% who had a "negative" or "very negative" experience. A new survey is due in April and should provide an early snapshot of how successful the OFT's rules are.

David Bishop of the FSB says the pressures of running a business hamper the search for a better deal. "Business owners are dealing with issues such as payroll and staffing, so shopping around for a better bank account is a low priority," he says. "Banks have taken advantage of this inertia in the past and have become too comfortable - and the level of service they offer has declined. It's only when customers have had an argument with their bank manager or received poor service that they take action."

So what kind of account do you need and what should it offer? Typically, you will need a current account for everyday transactions and receipts and a demand deposit account, usually used for building up capital that won't be needed at short notice. Better interest rates, lower charges and solid support systems are the most important factors to consider.

Ask any prospective bank if it offers a dedicated small business team or an individual business adviser or account manager (or personal relationship manager, in current bankspeak) who will meet you face-to-face. A business support helpline is also useful. If you find a bank that offers these services, check how much they cost before you pledge your troth. You mean you thought they were free? A dedicated "switching" team could also make your life easier.

Banks make money from interest and charges and if you're not canny you can end up paying eye-watering fees. Make sure you understand how fees are levied on your account and whether there are any hidden nasties such as charges for letters sent out by the bank. Most banks charge for transactions such as stopping or returning cheques, issuing bankers' drafts and making payments. Arranging loans and overdrafts usually attract separate fees.

If your business carries out a lot of transactions, you're better off paying a fixed monthly fee (typically £10) rather than choosing an account that charges you for each individual electronic and paper transaction (usually around 60p for paper and 45p for electronic).

Failing to check these simple fees could lead to a small but steady drain on your cashow. Some accounts allow free direct debits and standing orders for new customers. It's also vital you check if there is an overdraft facility, and if so, what it is. As with personal accounts, the penalties for unauthorised borrowing can be extortionate - typically around 30%. Check what they are, and whatever you do try to make sure you never incur them.

Can you get interest on reserve cash? Does the bank offer telephone and online banking? No matter where your offices are, round-the-clock internet access to your accounts can save you valuable time trudging down to the High Street for a 10-minute meeting.

If you're starting a new business, the bank you use for your personal finances might be more supportive and receptive to your ideas (providing you have a good track record) than another approached cold. However, it's important to compare at least three other accounts to ensure you get the best all-round deal, and the right balance of charges and facilities. Increasing competition means special offers and better rates, such as extended periods of free banking, but don't be dazzled by once-in-a-lifetime deals.

Once you have moved, review your arrangements once a year and compare your account with as many others as possible. This is easily done using independent financial data providers such as Moneyfacts (Moneyfacts.co.uk).

Pressure from the government and smaller banks such as Alliance & Leicester and Abbey Business is finally making inroads into the SME banking sector, which means there has never been a better time to extract the best possible deal for your business. Now there is no excuse for not testing your bank's loyalty.

Bishop adds: "We need as many players as possible to offer a wider choice and ensure a better deal for smaller companies. If we are successful in encouraging the culture of shopping around - as people are increasingly doing with their utility providers, for example - then we'll have been successful."

TTS Communications is a small, Hull-based telecoms company specialising in digital surveillance equipment and wireless networking. Since its inception in 1992, it has changed banks twice. The first move was from the Yorkshire Bank to NatWest. TTS then switched from NatWest to Abbey Business (Abbey's business offshoot) last year.

The firm's managing director, Trevor Wildbore, 48, says he changed banks the first time in order to enjoy a more personalised relationship with his bank's business advisers. He says: "Yorkshire Bank seemed to change its advisers very frequently - every couple of years - so it was impossible to build up a decent relationship there."

Unfortunately the move took a few months, during which time a lot of standing orders went astray.

TTS's recent switch from NatWest to Abbey was a happier affair. Wildbore says: "I was advised by my accountants that if we switched we would save on our charges. When it came to moving, the transfer was about as seamless as it gets. We gave the bank's switching team our details and they took over."

The personal touch was a deciding factor in the choice of new bank. Wildbore adds: "Abbey has business managers I can talk to face-to-face, which is crucial for a company this size. Small businesses need all the support and help they can get. If that means switching banks, I would definitely recommend it."