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Common Misconceptions About Bank Negotiations

Current Account Service Fees

When financial executives talk about managing banking costs, they inevitably focus on current account service fees. This is an understandable but potentially costly oversight.

Current account service fees are a high profile issue in bank negotiations. Year-in and year-out banks press for price increases. Year-in and year-out they meet resistance. Financial executives believe that this is an area where costs are not increasing. Secure in this knowledge they characterize bankers’ demands as unreasonable. They counter with calls for a price freeze or roll-backs. Over the years, service fees have become a point of real contention between the banks and their corporate customers.

What’s wrong with this picture? To begin with, current account service fees are a small part of overall bank costs. Contrary to popular belief, they aren’t a bellwether cost. There’s no evidence to suggest that service fee pricing sets a pattern for price increases in other areas. Quite the contrary. It’s common for bankers to use service fees as a negotiating gambit. The strategy of holding the line on service fees and quietly implementing cost increases elsewhere has served the banks well.

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The bottom line is banks charge a large number of fees for a broad range of products and services. When you sit down to negotiate bank fees, it’s important to have the lay of the land. This means understanding which compensation items have significant cost saving potential, which items need to be priced as a group, and which items are negotiating give-aways. You have to see the whole playing field before you can decide the best way to level it.

Financial executives who believe that fee negotiations start and stop with current account service fees almost always short-change their companies. The best way to avoid this myopia is to look at the big picture. When Genus Financial Corporation uses terms like bank fees or service charges we’re painting with a broad brush. We’re referring to the whole range of borrowing costs and fees that banks charge for using their products and services. Make this adjustment to your thinking and you’ve taken an important first step in getting the best banking deal for your company. Bank renewal negotiations are much, much more than squabbling over current account service fees.

The Bank Fee Challenge

When financial executives talk about bank fees most respond with two comments – “too many” and “too much.” Small wonder:

  1. Most companies pay a bewildering array of bank fees. Typical banking renewal agreements cover credit facility pricing, operating line fees, current account service charges, cash management fees, interest compensation arrangements, and credit/debit card charges. When it comes time to negotiate banking costs, it’s often hard to know where to begin.
  2. Nearly all companies pay too much. Most lack the benchmarking information they need to negotiate effectively. Too many inherit rate structures that reflect yesterday’s credit assessment or volumes. Foreign exchange mark-ups are rarely a discussion point at renewal time. Few companies take the time to properly prepare and benchmark their fee negotiation case. Most companies reap what they sow.
There's no question that negotiating bank fees is complicated and confusing. There's also no question that few companies manage these negotiations well. The real question is why. To answer this question, we need to look at the structural advantages that banks enjoy in fee negotiations.

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Jack’s review was efficient and comprehensive. He was able to provide us with a benchmark document as well as valuable improvement suggestions.

Dupont Canada Inc.
Leslie Taylor, CA
Treasury Manager