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Focus on:
banking
Back to basics |
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| Charities
should be employing a back to basics approach to banking,
says Peter Mitchell, to increase the efficiency of every pound
they receive |
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Money
never sleeps, so the saying goes. But for many years, between
hundreds of millions and several billions of pounds have been
lying in dormant accounts across the UK, seemingly forgotten
or unwanted. Now, it looks certain that this cash is to have
a renewed social purpose. The Commission on Unclaimed Assets
has made a powerful argument for a large slice of the UK’s
dormant bank deposits to set up a social investment bank to
serve the not-for-profit sector.
The debate over lifting money from the mainstream banking
sector to finance a social investment bank is a huge and exciting
topic. It forms part of a wider strategic debate on how the
sector should finance itself. But let’s not take our
eye off the ball of what the key banking priorities are facing
the sector.
There are over 180,000 registered charities in England and
Wales, running their cash flow every day. What are the key
operational challenges they face when managing their money?
For most, keeping their operational costs low is key. Charities
need to increase the efficiency of every pound they receive;
they cannot afford for its value to leak out through inefficient
money management.
Online banking has given charities a cost-effective channel
through which to manage their banking. It gives them a greater
degree of flexibility by enabling them to make payments at
any time. This is particularly true for smaller charities,
whose treasurers work on a part-time or voluntary basis.
But there is a longer-term benefit for charities that make
the move to online banking. Cheque usage is on a downward
trajectory. It fell over 39 per cent between 1994 and 2004,
and in ten years’ time it may be only 40 per cent of
what it is today. It follows that the relative cost of processing
cheques will begin to rise and high street banks may want
to pass on the cost to the consumer by making cheques a chargeable
item. It’s true that historically charities have been
high users of cheques, but if they can move to more cost-effective
payment methods – such as online – earlier, they
can get themselves ahead of the game.
The other side of the coin to keeping operational costs low
is to ensure that your charity is accessing good rates of
return on its working capital. Too many high street banks
still pay a negligible rate of return on charities’
balances, and even this can be wiped out through unnecessary
charges. The chief reasons charities remain with these banks
appear to be inertia and a sense of loyalty, which some may
argue is misplaced in the increasingly commercial world within
which charities are working.
And that’s another key reason to review your banking
arrangements every two to three years. You need to ensure
that both the rates of return your charity is earning and
the charges it is incurring are appropriate for its needs.
As a general rule, charities have fairly basic money management
needs, so it follows that they should be paying low charges.
Treat your bank much as you would any other supplier and ask
yourself: are we getting the right service at the right price?
So while the issue of whether or not to create a Social Investment
Bank is the hot topic of the moment, it’s not likely
to affect every charity. Neither is it likely to be a panacea
for all charities’ funding issues. Instead, charities
should begin with a back to basics approach. Only by looking
at their own housekeeping and training a microscope on their
money management processes, can they increase the efficiency
of every pound they receive.
Peter Mitchell is chief operating officer of CAF
Bank and director of Charity Financial Services Operations,
CAF
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