Commercial banks offer four main services:
1 They accept customers’ deposits.
2 They pay cheques drawn on them by their customers.
3 They grant advances to customers.
4 They provide a payment mechanism for the transfer of funds
between its own customers and those of other banks.
KINDS OF BANK
ACCOUNT
Current accounts are the most
usual type of bank account. Deposits in the account can be withdrawn on demand.
This is the main method by which customers may utilizes the full money transfer
facilities of the bank, involving the use of cheque, credit transfers, standing orders (standing order an
order to make certain payments at stated times) and direct debits (similar to standing orders but instead of the
customer stating the amounts and when to pay them the company tells the bank
what to pay and when). Traditionally the current account holder did not receive
interest on funds but some banks now pay a small rate of credit interest.
Besides their main services banks offers customers a wide range of
miscellaneous services including safe custody and night safe facilities, the
provision of references, executor and trustee, and pension and insurance
services plus advice on how to start up a business.
Deposit accounts have been used
by banks in recent years to attract customers. A range of deposit accounts are
offered paying various rates of interest as well as the ordinary deposit
account. On ordinary deposit accounts withdrawals are subject to 7 days’
notice. Generally the amount of interest depends on the amount of money
deposited and to some extent on the length of notice of withdrawal required.
Opening Accounts
Anyone wishing to open an account
should legally provide satisfactory references or be introduced by an
established customer of the bank. In practice, however, some banks do not
necessarily take personal references in respect of customers but may rely on
proof of identity and some form credit referencing.
Statements
Periodic loose-leaf statements
are provided to customers. These statements record all transactions affecting
the customer’s current account and the balance after each day’s transactions.
Cheques
Cheques are widely accepted from
of payment today. Their acceptability has increased since the introduction of
the cheque guarantee card in 1965, which guaranteed the payment of a cheque up
to a stated amount.
A banker is entitled to refuse
payment of a cheque in any of the following circumstances:
- When the drawer has countermanded payment.
- When the balance on the drawer’ account is
insufficient to meet the cheque.
- When the cheque is post-dated, ie dated ahead of
time.
- When the cheque has become ‘stale’, ie over 6 months
old.
- When the cheque contains some irregularity, eg a
forgery or an unsigned alternation.
- When the banker is aware that the drawer has died or
committed an act of bankruptcy.
In any of these circumstances the
cheque would be returned to the payee or other holder marked with the reason
for its non-payment.
Bank Charges
As long as personal customers keep
their accounts in credit they are not liable to any bank charges.
Business customers will normally
negotiate their charges with their bankers. Such charges are generally applied
quarterly.
CORRESPONDENCE WITH BANKS
Correspondence between the bank
and its customers tends to be standardized and quite formal, as shown in the
range of correspondence here.
CURRENT ACCOUNT
Notification of signatures to bank
Only officers authorized by a
company’s board of directors may sign cheques for the company. The bank will
want to see a copy of the board’s resolution authorizing the opening of an
account and stating the manner in which cheques are to be signed and by whom,
with specimens of their signatures.
Example:
Dear Sir
At meeting of the Board yesterday
it was decided that cheques drawn on the company’s account must bear two
signatures instead of one as formerly.
One of the signatures must be
that of the Chairman or Secretary; the other may be any member of the Board.
This change takes place as of today’s date.
There have been no changes to
membership of the Board since specimen signatures were issued to you in July.
A certified copy of the Board’s
resolution is attached.
Yours Faithfully
Account overdrawn – correspondence with
bank
The following is the kind of
letter a bank manager would send to a customer who has overdrawn on their
account. While being polite, courteous and helpful the letter conveys to the
customer the seriousness of an unauthorized overdraft.
(a) Letter from bank
Dear Miss Sadia
On a number of occasions recently
your account has been overdrawn. The amount overdrawn at close of business
yesterday was $150.50. Please arrange for the credits necessary to clear this
balance to be paid in as soon as possible.
Overdrafts are allowed to customers
only by previous arrangement and as I notice that your account has recently
been running on a very small balance, it occurs to me that you may wish to come
to some arrangement for overdraft facilities. If so perhaps you will call to
discuss the matter. In the absence of such an arrangement I am afraid it will
not be possible to honor future cheques drawn against insufficient balances.
Yours sincerely
(b) Customer’s reply
Dear
Thank you for your letter of
yesterday. I have today paid into my account cheques totaling $80.42. I realize
that this leaves only a small balance to my credit and as I am likely to be
faced with fairly heavy payments in the coming months I should like to discuss
arrangements for overdraft facilities.
I have recently entered into a
number of very favorable contracts, which involves the early purchase of raw
materials. As payments under the contracts will not be made until the work is
completed I am really in need of overdraft facilities up to about $1500 for 6
months or so.
I will call your secretary in the
next few days to arrange a convenient time for me to call to see you.
Yours sincerely
Drawer stops payment of cheque
When a payment of a cheque is
stopped, as for example where the cheque has been lost in the post, payment is
said to be countermanded (cancelled). Only drawer of the cheque can countermand
payment. This is done by notifying the bank in writing. An oral notification (a
verbal message), even when made by the drawer in person, is not by itself
enough and, as with a notification by telephone, it should be immediately
confirmed in writing.
Example:
Dear Sir
I wish to confirm my telephone
call of this morning to ask to stop payment of cheque number 76286 for the sum
of $97.75 payable to the St Annes electrical Co Ltd.
This cheque appears to have been lost
in the post and a further cheque has now been drawn to replace it.
Please confirm receipt of this
authority to stop the payment.
Yours faithfully
Complaint concerning dishonoured cheque
(a) Customer’s letter to bank
Dear Sir
The Robi Furti Radio &
Television Co Ltd informs me that you have refused payment of my cheque number 527601
of 16 August for $285.75. The returned cheque is marked ‘Effects not cleared’.
I believe this refers to the cheques I paid in on 11 August, the amount of
which was more than enough to cover the dishonoured cheques.
As there to have been ample time
for you to collect and credit the sums due on the cheques paid in, please let
me know why payment of cheque number 527601 was refused.
Yours faithfully
(b) Reply from bank
Dear
In reply to your letter of
yesterday, I am sorry that we were not able to allow payment against your
cheque number 527601. One of the cheques paid in on 11 August – the cheque
drawn in your favour by M Tippett & Co- was post-dated to 25 August and
that the amount cannot be credited to your account before that date.
To honour your cheque would have
created an overdraft of more than $100 and in the absence of previous
arrangement I am afraid we could not grant credit for such a sum.
I trust this explanation
clarifies this matter.
Yours sincerely
Request for bank reference
Bankers will not give information
to private enquires about their customers. When a buyer, in seeking credit from
a supplier, gives the bank as a reference the suppliers must approach their own
bank, not the buyer’s bank, and ask them to make the necessary enquires. As a
rule the information supplied in answer to such requests is brief, formal and
much less personal than that obtainable through a trade reference.
(a) Supplier’s request to bank
Dear Sir
We have received an order for
$1200 from Messrs Joynson and Hicks of 18 Drake Street, Sheffield.
They ask for credit and have given the Commonwealth Bank, 10 Albert Street, Sheffield S14 50P, as a
reference.
Please make inquires and let us
know whether the reputation and financial standing of this firm justify a
credit of the above amount.
Yours faithfully
(b) Reply from bank
Dear Sir
As requested in your letter of 18
April we have made inquires as to the reputation and standing of the Sheffield firm mentioned.
The firm was established in 1942
and its commitments have been met regularly. The directors are reported to be
efficient and reliable and a credit of $1200 is considered sound.
This information is supplied free
from all responsibility on our part.
Yours faithfully
BANK LOANS AND OVERDRFTS
When granting an advice to a
personal customer, especially an overdraft, the bank may require some from of
acceptable security. The security should be easy to value, easy for the bank to
obtain a good legal title, and it should be readily marketable or realizable.
The most common types of security accepted are life policies, shares, mortgages
of land and guarantees.
Normally a bank will not require
security from a customer to support a personal loan.
Interest on an overdraft is
charged on a daily basis, while interest on a personal loan is calculated on
the full amount borrowed.
Request for overdraft facilities
(a) Customer’s request
Dear Sir
With the approach of Christmas I
am expecting a big increase in turnover (total sales), but unfortunately my
present stocks are not nearly enough for this. Because my business is fairly
new wholesalers are unwilling to give me anything but short-term credit.
I hope you will be able to help
me by making me an advance on overdraft until the end of this year.
As security I am willing to offer
a life policy, and of course will allow you to inspect my accounts, from which
you will see that I have promptly met all my obligations.
Please let me know when it will
be convenient to discuss this matter personally with you.
Yours faithfully
(b) Banker’s reply
Dear Mr Triston
Thank you for your recent letter
requesting overdraft facilities.
We are prepared to consider an
overdraft over the period you mention, and have made an appointment for you to
see me next Friday 11 November at 2.30
pm.
Please bring with you the life
policy mentioned together with your company’s accounts.
Yours sincerely
Request for loan without security
Dear Sir
In April 2012 you were good
enough to grant me a credit of $5000, which was repaid within the agreed
period. I now require a further loan to enable me to proceed with work under a
contract with the Waterfoot Borough Council for building an extension to their
King’s Road School.
I need the loan to purchase
building materials at a cost of about $6000. the contract price is $20,000,
payable immediately upon satisfactory completion of the work on or before 30
September next.
I hope you will be able to grant
me a loan of $5000 for a period of 9 months.
I enclose a copy of my latest
audited balance sheet and shall be glad to call at the bank at your convenience
to discuss the matter.
Yours faithfully
Request for loan with security
Dear Sir
I am considering a large
extension a business with several firms in Japan and as the terms of dealings
will involve additional working capital (the capital needed to keep a business
running). I should be glad if you would arrange to grant me a loan of say,
$6000 for a period of 6 months.
You already hold for safe keeping
on my behalf $5000 Australian 3% stock and $4500 4% consols (short for
consolidated annuities – a form of British Government stock). I am willing to
pledge these as security. At current market prices I believe they would provide
sufficient cover for the loan.
You would be able to rely upon
repayment of the loan at maturity (when it becomes due) as, apart from other
income, I have arranged to take into the business a partner who, under the
terms of the partnership arrangement, will introduce $5000 capital at or before
the end of the present year.
If you will arrange a day and
time when I may visit you, I will bring with me evidence supporting my request.
Yours faithfully
Request for extension of loan
Dear Sir
On 1 August you granted me a loan
of $2500 which is due for repayment at the end of this month.
I have already taken steps to
prepare for this repayment but due to a fire at my warehouse 2 weeks ago I have
been faced with heavy unexpected payments. Damage from the fire is thought to
be about $4000 and is fully covered by Insurance. However, as my claim is
unlikely to be settled before the end of next month, I hope the period of the
loan can be extended until then.
I am sure you will realize that
the fire has presented me with serious problems and that repayment of the loan
before settlement of my claim could be made only with the greatest difficulty.
Yours faithfully
Request to clear unauthorized overdraft
(a) Request by bank
Dear Mr Hendon
I notice that since the beginning
of last September there have been a number of occasions on which your current
account has been overdraft. As you know it is not the custom of the bank to
allow overdrafts except by special arrangement and usually against security.
Two cheques drawn by you have
been presented for payment today, one by Insurance Brokers Ltd for $28.50 and
one by John Musgrave & Sons for $87.10. As you are one of our oldest
customers I gave instructions for the cheques tobe paid although the balance on
your current account, namely $57.40, was insufficient to meet them.
I am well aware that there is a
substantial credit balance on your deposit account. If overdraft facilities on
your current account are likely to be needed in future, I suggest that you give
the bank the necessary authority to hold the balance on deposit as overdrawn
security.
Yours sincerely
(b) Customer’s reply
Dear Mr Stannard
Thank you for your letter of 2
December.
I am sorry to have given you
cause to write to me concerning recent overdrafts on my current account.
Although the amounts involved are not large I agree that overdraft facilities
should have been discussed with you in advance and regret that this was not
done. I am afraid I had overlooked the fact that the balance carried on my
current account in recent months had been smaller than usual.
Later this month I expect to
receive payment to several large contracts now nearing completion. No question
of overdraft facilities will then arise. Meanwhile I am pleased to authorize
you to treat the balance on my deposit account as security for any overdraft
incurred on my current account. Once again my apologies for the inconvenience
caused.
Yours sincerely
OTHER
BANKING CORRESPONDENCE
Customer Service
Dear Miss Turner
It has been 4 months since you
opened your account with us. I trust that the service you have experienced
during this time has been of the highest standard.
Customer service is a top
priority at the Royal International Bank, and that is why we invite all our
customers to have a Customer Service Review. This service can take place in
person at this branch or over the telephone. It gives customers the opportunity
to ensure that they have the most suitable accounts to meet their requirements.
This review is free of charge. If
you would like to take advantage of this service, or to discuss any other
matters, please contact Kelly Sherman on 012343243 to arrange a mutually
convenient appointment.
I look forward to speaking to you
very soon.
Yours sincerely
Offers
Dear Miss Wright
MAXIMUM SAVING, MINIMUM EFFORT
Now that you have opened a Bonus
90 Account, why not build up your savings the hassle-free way with a standing
order?
This simple arrangement makes
everything so easy – just decide how much you would like to transfer from your
current account each month, then complete and sign the attached from. We will
do the rest. There is no need to visit your branch, and no need to send any
cheques.
WATCH YOUR SAVINGS GROW
If you pay money regularly into a
savings account with a high interest rate, you will be surprised at how quickly
your nest egg builds up. With tiered rates of interest, you will earn more
depending on how much you save.
Take advantage of this great opportunity
now by completing the standing order from below and returning it in the
enclosed reply-paid envelope.
We really can make saving simple!
Yours sincerely
