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How to manage bank accounts: the basics

canadian-cashIt is likely that your company will have several contacts at its primary bank. For example, your finance manager or president may deal with the bank’s branch manager or perhaps a vice-president or regional manager, while your accounting supervisor and finance staff will deal with branch personnel. Larger companies may deal with an account manager at a senior level (such as a vice-president) at a bank’s corporate or commercial banking centre.

A clear understanding of how the institution’s client-relationship team is organized will assist all relationships to work efficiently.

To ensure a positive relationship with your bank, it is important to proactively inform the bank about developments at your business: expansions, contractions or other changes, major losses, etc.

The exception would be if there is never going to be any need for credit. This is rare since even a non-borrowing customer may have credit cards, foreign exchange lines, letters of credit or other services that require a credit line from the bank.

A good ongoing banking relationship is very valuable, but it is useful to review offerings from other banks from time to time. In particular, enterprises with unusual needs, far-flung branches or international operations may find that they have outgrown their present bank.

In addition, simply ensuring that your branch is meeting your needs is important: is the staff helpful, does the manager provide useful contacts, are deposits processed accurately and efficiently? With online banking, you may have limited contact with branch personnel, but knowing the right person to deal with can be very helpful when issues arise.

Board resolutions and shareholder guarantees

Banks require certified copies of resolutions of the board of directors before opening new accounts or changing the relationship (such as advancing a new loan). It is not sufficient simply to sign the documents provided by the bank. If they require a supporting resolution by the board of directors, obtain that resolution first.

In the case of small companies, banks may ask for shareholder personal guarantees merely to open an account. It may be appropriate to refuse their request. Generally, they will still accept the account, which, after all, is a loan from the company to the bank.

Additional services provided by banks

Banks provide many services to facilitate strong controls over disbursements and to protect against fraud. These include online monitoring and access, “positive pay” and “negative pay” (methods of detecting counterfeit cheques) and automated bank reconciliation services.

Canadian banks offer US-dollar denominated bank accounts domiciled in Canada. While these accounts are convenient for handling US currency in Canada, they may subject customers or suppliers in the United States to extra charges or delays.

To avoid this, if there is sufficient activity, it is better to use “pay through” accounts that operate through a US correspondent bank, or, even better, deal with a US bank branch in the United States directly.

Reviewing banking activity and reconciliation

Unless the activity through the bank accounts is very modest, it is appropriate to review bank activity daily.

Banks offer various ways of tracking transactions and balances online, transferring funds between accounts, and combining balances (and offsetting overdrafts and positive balances). It’s worthwhile to review these services periodically to ensure that the accounts are being operated as efficiently as possible.

The bank reconciliation is a simple yet powerful internal control over cash.

Old outstanding items must be investigated and cleared. Frequently they are indicative of internal control deficiencies in the accounting area, problems in other departments (e.g., customer cheques returned), and may reveal fraud.

In most cases, an organization should review reconciliations of operating accounts daily, or at least ensure that all processed items correspond to the accounting records. On a monthly basis, a formal reconciliation should be prepared.

prod-fappTo obtain more information on bank reconciliation and related policy check Finance & Accounting PolicyPro published by First Reference.

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Jeffrey Sherman

Chief financial officer, author, lecturer and professor focussing on corporate finance at Atrium Mortgage Investment Corporation, Canadian Mortgage Capital Corp., Trimel Pharmaceuticals Corporation, and Anagram Services
Jeffrey D. Sherman, BComm, MBA, CIM, FCA, is a director or CFO of several public companies and has had over 20 years of executive management experience. He is the author of Finance and Accounting PolicyPro, Not-for-Profit PolicyPro and Information Technology PolicyPro (guides to governance, procedures and internal control, all published by First Reference and the CPA). Read more
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