Did you know that overdrafts are repayable at 24 hours’ notice?
“Sales are vanity, profits are sanity and cash is reality.”
The creator of this quotation was obviously a business owner, because only someone who has owned their own business really understands the bitter truth of it.
Despite their daily dealings with cash, bankers certainly don’t understand it. In fact, they understand very little about business in general. Any business owner who’s recently spoken to their bank relationship manager (BRM) will realise this quite quickly.
These days, BRMs tend to be little more than messengers between business owners and their banks’ credit departments. You tell your BRM all about your business, the problems it’s had and the orders that are in the pipeline. You then pray that some of that information gets through to the bank’s Credit Department in an intelligent form. Usually this does not happen and you find that your bank overdraft is being reduced by many thousand Rands per month, as recently happened to a client of mine.
Like most smaller businesses, one of my clients had a poor 2015. However, due to the depreciation of the Rand, he had a very good 2016 with a full order book, despite having put up his prices. He only found out that the bank had reduced his overdraft when his accountant tried to do an EFT payment. No warning, no notification, just wham – his bank overdraft was reduced by R 50 000! I wrote to the General Manager of business banking on his behalf about a month ago. We’re still waiting for a reply.
Bank overdraft call-up
Interestingly, I acquired this client because another bank had called up his overdraft on 24 hours’ notice. Yes, you read right! Read the small print on your facility letter – overdrafts may be called up on 24 hours’ notice. That means notification today, repayment in full tomorrow.
Luckily, my client had a flexi-bond on his house which had some surplus, enabling him to pay the bank. I got the job because I undertook to get him an overdraft from another bank, which I did without any problem – my main expertise as an ex-corporate banker.
In my next article on managing cash flow, we will discuss how you go about applying for a bank overdraft.