Best ways to reduce costs and streamline efforts
Simple though it may sound, choosing a bank or credit union for your nonprofit is an important decision. Your financial institution plays a vital role in the day-to-day management of your organization, from managing the funds you receive from donors to paying employees and vendors. Ultimately, the right bank or credit union can help you reduce costs and streamline efforts.
For example, many banks and credit unions offer accounts specifically for nonprofits or community groups. Online banking services that align with your accounting system are another plus, as are convenient branch locations and hours. You'll also want to be comfortable with the institution's ethical standards.
As you're considering the options, take the following factors into account.
What banking ethical standards should your nonprofit expect?
Since the recession of 2008, banking regulations in general are more stringent (this may be changing under the Trump administration). Today, senior leaders in banking are more accountable for their actions, with reward and incentive structures under greater scrutiny than ever before.
While higher accountability and transparency are welcome, regulations on their own are not sufficient. Rules can be gamed; they can also never account for every eventuality. The responsibility for high ethical standards and professional competence sits not with the regulator, but with banks as corporate entities with their own ethical standards for doing business.
A recent article in City AM notes that law, ethics and culture must be aligned for the banking sector to be worthy of customers’ trust.
“All three — law, ethics and culture — need to be fully aligned, and aligned in the interests of the customer that the banking sector exists to serve. This is not about banks being trusted. It is about banks being trustworthy . . . a trustworthy banking sector supports growth and prosperity across the economy, and trust is surely a core competitive advantage for any financial center.”
Look for a bank that publishes it ethical standards and, based upon your best assessment, appears to follow those accepted ethical guidelines. Their openness to external review and challenge, especially with the larger banks, is a clue to how ethical they really are.
Most banks and credit unions offer several types of business checking/current and savings accounts. Selecting the best accounts for your organization depends on a number of factors, including your average monthly balances, number of deposits, checks paid, and incoming and outgoing electronic payments.
You'll also want to consider specific features and fees, such as:
- Interest rates for interest-bearing accounts
- Minimum balance requirements for business accounts
- Availability of foreign currency transactions
- Monthly maintenance fees or fees for writing checks, ATM deposits or other transactions
- Number of authorized individuals allowed on a single account (particularly to support dual-signed transactions, including via internet banking), as well as ease of adjusting those authorized to access the account. Don’t assume that just because a mandate requires two signatories on a paper check that the same rules will apply on an internet banking platform
- Insurance coverage for high-balance accounts (such as FDIC coverage in the U.S. for balances in excess of $250,000; in the U.K. most deposits up to the value of £85,000 are covered under the Financial Services Compensation Scheme or FSCS)
Looking for ways to simplify account reconciliation, automate methods of payment, increase availability of funds and more? Ask about treasury management services, such as:
- Remote deposit capture: deposit checks online
- Automated Clearing House (ACH): pay vendors electronically, track and receive automatic payments from invoices, transfer funds from other financial institutions and more
- Fraud control services: detect and prevent fraud before funds change hands
Access to credit
Most nonprofits have cyclical fluctuations in income. Having a revolving line of credit can help you meet cash flow needs during delays in the funding cycle or when you face a lack of operating reserves — keeping in mind any requirements laid out in your organization's reserves policy.
Find out what types of financing are offered by the prospective financial institution and what would be required to qualify. If you anticipate needing to purchase equipment or other large-ticket items in the months ahead, you might ask about term loans (which will enable you to make payments over an extended period of time rather than all at once). Also, you may want to have at least one credit card to handle routine purchases and cover unexpected expenses — with adequate controls in place to manage its usage.
If your nonprofit accepts donations by credit and debit card, you'll need access to payment processing services. Most financial institutions offer several service and equipment options, so talk with a representative about what's right for you. And be sure to ask about processing time, customer service and pricing plans.
Strong relationships and service
Having a relationship with a banker can be a powerful asset, so find out if you'll be able to work with a relationship manager. The more your banker understands your mission, programs and potential impact, the greater your chances of having access to the financial solutions you need to succeed. Since many banks and credit unions are charitable givers, cultivating strong ties may lead to potential financial support as well.
Also ask about customer service practices. For example, when an issue arises, is live customer support readily available? If not, what's the typical response time? Feeling confident about the caliber of service you'll receive in those moments will make a difference.
Bottom line, choosing the right financial institution matters. Shop around. Ask questions. Document your research to better compare the options. Then, choose a bank or credit union that can support your organization's growth in the years ahead. As your needs evolve, review your banking arrangements to make sure you're still taking advantage of the most competitive opportunity.
This article draws on the expertise of Andy Nash Accounting & Consultancy. Based in Cardiff, Wales, the firm offers specialized accounting and financial consultancy services to small and medium sized nonprofits.
Nonprofit Accounting Basics: Choosing the right commercial checking account for your nonprofit by Tom Ciolkosz (2015)
NonProfitCentral: How to choose a bank
Quora: What is the best bank for a non-profit with around $20,000 in grant funding? by Alnisa Allgood (2013)
The Arizona Republic: Can a nonprofit have a regular bank account? by Joe Jarecht
Investopedia: Top 10 checking accounts for nonprofits (EVER, WFC) by Jeff Krohnfeldt (2016)
Houston Chronicle: Banking rules for non-profit organizations by Alexis Writing
Houston Chronicle: Structure of bank accounts for a nonprofit organization by Tracey Sandilands
Charity Finance Group: Banking for charities (2012)
Resource Centre: Bank accounts for community groups (2016)