Guided by a vigilant and crusading national media, bank and building society customers have become adept at looking for the best return on their cash and investments. They are bombarded with exhortations to remortgage, change credit cards, switch savings accounts and find a tax-efficient home for long-term savings. If they cannot do it themselves, they are advised that an accredited IFA should be their first point of call.
If you run your own business, however, you will be hard-pressed to find articles on how to make the most of your cashflow. Where writers touch on the subject of business finance, they tend to concentrate on two main topics – where to find business finance for growth and what to do if clients are not paying invoices. The basics of cash management are largely ignored by the media.
With small to medium-sized enterprises accounting for 99.8 per cent of UK businesses and 50 per cent of the nation's turnover, this is extraordinary. It is even more so since the Competition Commission focused the spotlight on banks in 2002 and urged them to provide better rates, lower charges and improved customer service for businesses.
The market should be alive with activity. We should be seeing the same behaviour in the business market that we have come to expect from consumers.
Recent industry surveys have revealed that banks' business customers have seen little change since 2002. With the average business current account delivering an interest rate of 1.5 per cent, it is not particularly surprising that businesses might not see the valuein looking around.
But UK businesses have £39.3bn on deposit and if all of it is attracting only 1.5 per cent interest, they could be ignoring a potential £825m in extra interest. So why are businesses not shopping around and what can IFAs do to help them and improve their own customer relationships at the same time?
Against a background of low rates and low expectations, customers are disinclined to spend time looking at business savings. Often, companies cannot rely on their bank to supply a competitive rate but the ease of using their existing provider ensures they remain loyal. Inertia – and a mistaken view that the administration necessary to move savings to another provider outweighs the potential gain – maintains the status quo.
Many SMEs simply do not have time to sift through the finance options available to them to make the best choices. This offers IFAs the opportunity to demonstrate the difference that shopping around can make. Demonstrating how easy it is to change accounts and the savings that can be made in this one simple area of business finance should open doors for IFAs.
A simple illustration shows that by switching a modest £100,000 saved in a business current account earning the average 1.5 per cent interest into a Standard Life Bank direct-access business savings account earning 3.6 per cent will generate £2,100 in extra interest. But IFAs will be aware that a simple switch like this is only the beginning of what could be achieved by considering other options. By creating pots of money – some of which the client can access instantly and others that are not needed immediately – IFAs can generate much better returns and show a greater overall result for their clients or potential clients.
IFAs have a significant role to play. For many businesses worrying about difficult trading conditions, time has been at a premium. When they do have time to read and listen to the media, they are constantly bombarded with advice about how to grow, where to find the money to do it and how to collect the money they are owed more efficiently.
Companies should be realising that they could help themselves by changing their banking behaviour. With City predictions of a rise in interest rates to at least 4.75 per cent by the end of the year, businesses are going to realise that what they do with their cash is going to become increasingly important.
Canny IFAs can use business savings as an easy introduction to better cashflow management and a quick way to demonstrate their value to clients. Of course, this is not only a way of building client relationships, it is also an income generator for IFAs. Even cannier IFAs might want to look around for competitive savings rates for their own businesses as they, like every other business, will have been under exactly the same pressures during the last few years.
I believe most SMEs do not consult their IFA enough and are not seeking the advice they need to. A business savings account is just one option to help improve their cashflow management and it provides a great opportunity for IFAs to grow business or start new relationships.
As interest rates rise, IFAs should be using this as a foot in the door to overhaul SME business finance.