Today (Tuesday 26th July 2016) Nat West and RBS have written to customers to advise that if the Bank of England reduces interest rates further (currently 0.5%) then business customers may be charged for holding money on deposit.
At the moment this possibility remains just that, a possibility, yet more likely since the vote to leave the European Union and the expected impacts on the Economy. If it does happen businesses that have reasonable cash reserves will have a new cost, so what should you do to minimise the impact?
- Bring forward investment, thus reducing the cash balances held and accelerating the growth of your business. In times of uncertainty, it’s often the businesses that are investing that thrive as the economy takes off, so this makes good business sense anyway.
- Accelerate your payment cycles to suppliers, again reducing cash, but increasing the loyalty and support of your suppliers, you may even be able to negotiate discounts for doing so. Good businesses do this already.
- Give better credit terms to win new business – delaying the receipt of money may seem counter intuitive but if by doing so you can win new business too it’s a win-win. Of course, your clients need to be good for the credit that you are offering.
- Keep a closer eye on cashflow and manage it carefully. You should be doing this already.
- If you run a private company think about paying additional dividends and/or taking directors loans as deposits in private accounts will probably remain free of charges, for now at least.
The costs the bank will impose are likely to be small, so the effort in making changes to your systems must be worth it compared to the gains, but we think 1-4 are strategic changes you should be making anyway.