Fees have increasingly been in the spotlight in 2018, and with rising competition in the banking sector and budgets coming under severe pressure, Bianca Botes, Corporate Treasury Manager at Peregrine Treasury Solutions, notes that it is high time South African businesses took a hard look at their banking costs.
It can be hard to know your actual banking costs
“Increased competition is slowly driving down transactional fees, yet many businesses are losing out through a lack of awareness of how their overall fees are structured, or the wide range of banking solutions and products available that may better fit their needs,” she says.
For example, transaction fees on business accounts are often bundled together as a single monthly expense, charged against each account, so that banks can cross-subsidise more active banking clients with those committing fewer transactions each month.
“This fee cannot be unbundled, which can make it extremely difficult to identify how much you are actually paying for an individual transaction. So, while this practice does make it simpler to reconcile your monthly fees, it leads to a lack of transparency concerning the value of your transactions versus the rates that you are paying.”
High fees can be disguised
To demonstrate the difference that the value of your transactions can make relative to the fees you may be charged, she offers the following example of a simple forex transaction:
You approach Bank A to pay for an import from an American supplier amounting to $100 000. Bank A agrees, and charges you a R1,200 international transfer or SWIFT fee for the payment of the foreign supplier, as well as an extra R250 for the handling of your shipment documents.
Additionally, however, Bank A charges you R13.80 per dollar. But as the dollar exchange rate at that moment is trading at R13.50, this means that your bank is actually earning 30c for each dollar acquired, or a total of R3,000.
This means that your bank would actually be earning a princely R31,450 on your single transaction.
“This simple example demonstrates the value of large transactions to banks, and the need for businesses to seek out competitive rates and solutions.”
Be aware of non-interest fees on loans
Botes adds that while most business owners are accustomed to paying interest on loans, normally charged as the prime interest rate plus 6%-12%, less are also aware of their facility and credit fees.
Facility fees are charged annually at a rate of between 0.5% and 1% of the total value of an overdraft facility. You may then need to pay additional credit fees in the form of sight or usage fees.
Sight fees are used to motivate companies to utilise their credit facility, charged against the unused portion of their total overdraft facility. The alternative is usage fees, charged against the portion of the total overdraft facility used.
“Many clients may not be aware of how these different products would be more individually suited towards their needs in terms of fees. But by doing your research and shopping around, or consulting professionals for advice on available banking solutions and forex rates, you could potentially save yourself and your business thousands.”