Banking (Home Business)

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 Deposits in the account can be withdrawn on demand.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