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Not long ago a prospective client from another state asked if I could make ACH deposits into his account instead of sending a
bank wire or an overnight check. At that point all I knew about ACH was that it stood for “Automated Clearing House” and that it was a common method for companies to directly deposit payday checks into employees’
bank accounts, rather than handing out paychecks. It was an electronic transfer of funds from one bank account to another.
His request led to an education about bankers for me.
As I thought about this
alternative means of transferring factoring funds, I saw its advantages. Up to that time I had been providing funds the traditional ways – using FedEx or Airborne Express, wiring funds, or depositing a distant
client’s advance or rebate check in a local branch if there was one near me. The first two were fairly expensive for the client (I charge $20 for either, plus the client pays to receive a bank wire on the other
end). Depositing checks in local branches was time consuming: filling out checks, endorsing them, preparing deposit slips, driving to the various branches, waiting in line, and finally driving back home. The more
clients I funded that used other banks, the longer this was taking.
Using ACH seemed like an excellent idea and a much better alternative to the time consuming process of check writing. In fact it seemed like
a practically free bank wire. Certainly my large national bank, whom I’d been with for nearly 10 years, would have no problem allowing me – a *stellar* customer – to use this (I assumed simply alternative) means of
transferring funds to my clients’ accounts. It’s just like writing a check, only done electronically. Right?
Wrong.
“Our local branches don’t handle ACH account requests,” I was sweetly (but
ominously) told. “You need to apply for this through the online banking center.” I didn’t like sound of the words “apply for.” I just wanted an easier way to get money to my clients. Why would I need to “apply for”
that? What’s more, going elsewhere within Big National Bank meant I lost the friendly and familiar smiles of all the tellers I knew so well. Undaunted in my ignorance, I moved forward.
I applied online for
ACH as instructed, and after waiting several days received this reply: “Our Business Risk Management Center is unable to approve your request at this time.” End of online message.
I couldn’t believe it and
called the cheerful young voice for online banking questions. She confirmed my rejection. “But…” I stammered, “I’ve been a customer here 10 years! I’ve had all my business accounts, personal accounts, my kids’
accounts, and home mortgage with you all this time! I’m one of your best customers!” “I’m sorry,” she said, “but there is risk involved for the bank with ACH transfers.”
Risk? I’m a risk to this bank?! In all my accounts of 10 years’ standing, when I’ve never bounced a single check or been a day late with any mortgage payments, I’m a risk? Do you know who you’re talking to, sister?
No she didn’t. And frankly, she didn’t care.
Ok, I reasoned. I’m a reasonable guy. Maybe I asked for too large of a line. (When you apply for this, you request a daily limit, up to which you can
transfer in and out of your account.) I’ll pare my request down considerably. Maybe this will make my account’s “risk” seem less…risky. After all, my application was being reviewed by Big National Bank’s “Business Risk Management Center,” wherever the heck that was. Certainly not in my local branch. These people would certainly have an eagle eye for risk.
So I reapplied, submitting more documents this time like I was directed. Then I waited two weeks this time. And didn’t hear anything. And still didn’t hear anything. So finally I called this young
woman, who was the only contact I had with online banking which was the only means to this service I had come to believe would save me many hours of time each week. When she answered the phone, I asked if my
account had been approved this time.
“Oh,” she said. “That just came in today. I’m sorry to say your request was declined.”
WHAT?!? Again?! “Why?” I choked. I couldn’t believe what
I was hearing. “I don’t know, sir. I’m not the decision maker. I can only tell you what the decision is.”
“Yeah, but does this decision maker know I’ve been a perfect customer for this bank for as long as I
have?” (“…Probably since you were running around a grade school playground at recess.” – I thought, but fortunately didn’t say.)
“I don’t know, sir,” was her (mantra-like) answer. “But there is risk
to the bank with this service.” Being told yet again that I posed a risk scorched what little composure I had left. I lost my cool.
“This is bull*!!” I unfortunately blurted out. No answer. “I guess
your bank wants a loyal customer of 10 years, who has brought many clients as new accounts, to take his business elsewhere.”
Silence.
Finally she replied, “I guess that’s your choice, sir.”
Yeah, right. My choice. You little grade school Hatchet Girl. My youngest kid is older than you and you just told me I have to make major changes to my way of doing business, to my banking practices, that I’ll have
to change all my automatic and online and credit card payments, that this will affect most of my clients’ bank accounts, and…I was getting really mad now. In fact I was mad enough to change banks right then and there. “This is bull*!” I repeated and slammed the phone down.
Now mind you, I’m usually a pretty calm, easy-going person. Most people who know me describe me as “a real nice guy.” I’ve only lost my composure like this one other time in the last 12 years that I can
remember. Even when I do get mad, I practically never swear at people. Especially young women who just 10 years ago were running around the grade school playground at recess. But this time, I was steamed.
“What’s the matter with these morons at Big National Bank?” I wondered. Then I realized, “You know what? This is exactly the ringer banks put most people through when they apply for a small business
loan. This is what they’ve been through when they reach the end of their rope and finally call a factor.” Hmmmm. “Only I didn’t go through this to borrow money,” I reasoned to myself. “I don’t want to sell my invoices. I buy invoices.”
But that fact meant absolutely nothing to Hatchet Girl or Anonymous Loan Officer at the Business Risk Management Center, wherever that was.
I quickly took this insult to my self-respect as
a bank customer, and affront to my dignity as a factor, as a challenge. “By God, I’m a funding source. People come to me for money. If these idiots who’ve banked my money for 10 years don’t want my business any more, who does?”
Immediately I thought of the manager of a nearby regional bank whom I’d met at a networking group
about a year ago. She’d referred a couple factoring deals to me since then, and each time made it clear she’d love to have my banking business…but moving banks had always seemed more trouble than it was worth. Until this moment.
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I picked up the phone and called. “Linda, does your bank offer ACH transfers?” “Yes we do.” “Will I be approved for them if I
apply?” I was learning the terminology. “Why don’t you come in and we’ll see,” she answered.
So I went in a couple days later. Now that I had calmed down since my conversation with Hatchet Girl, I asked,
“What is this big risk I pose to a bank by wanting to do this? I just want an alternative to writing checks.”
She replied, “ACH is an electronic transfer using the bank’s money. These transfers are made
through the Federal Reserve Bank and go directly from our bank to your client’s bank. That means you’re transferring money with no float and the transfer of funds is immediate. You could transfer funds you don’t
have in your account, and disappear the next day. Therefore the bank looks upon this daily transfer as a loan for which you must qualify. You need to meet the requirements for a loan: business financials, tax
returns, personal credit report, the whole bit.”
Ok, that explained the reluctance of Big National Bank’s Business Risk Management Center, wherever that was. Even though I saw this as just a different way of
writing checks, the Anonymous Loan Officer at the Business Risk Management Center saw it as a loan for which I didn’t qualify. That made me a risk despite my 10-year perfect multiple checking accounts history and
100% on-time mortgage payments. The Anonymous Loan Officer probably didn’t even know about those. If he did, he certainly didn’t care.
So I applied with Small Regional Bank not only for ACH transfers, but –
what the heck – I’ll throw in a request for a small line of credit while I’m at it. It’s done on the same form, besides. Linda quietly took my information and submitted my request, then I waited a few days.
I was turned down again.
At least this time the loan officer from Small Regional Bank had the decency to call me. She told me her name was Janet, asked several questions about my business and experience – and
even about the factoring books I’ve written – and then turned me down herself.
As this (sickening) conversation ended, I asked what would happen if I just requested the minimum daily ACH transfer
possible, $10k per day – and dropped the line of credit request. She said she’d need to see more documentation. I agreed, prepared what she wanted (and threw in 2 of my books for good measure), and took them to the
branch the next day.
Now…here comes the part you need to understand about banks and how they operate. A couple months earlier, Dave, my personal banker at Big National Bank, had left his position there. I
was sorry to see him go as he had helped me several times in the past. In a remarkable coincidence, Dave had just started working for Small Regional Bank – right here at my neighborhood branch, no less. He knew my
long history at Big National Bank, that I was a good customer, and even that I was a decent human being…which I was beginning to doubt, with all this rejection I’d just experienced.
I gave him the requested
paperwork along with the books. He asked if I wanted Janet to give the books back when she finished them. “If she turns me down again, yes,” I said with a chuckle (but was actually dead serious).
Then I
asked him to put in a good word for me with Janet. “Dave, you know I’m not going to abuse this. You know what kind of a bank customer I am. I just want to save myself a lot of time by making electronic transfers
from my computer, instead running all over town making deposits for clients.” He nodded in understanding.
Then, curious about all these loan refusals which were taking their toll on my self-esteem, I asked
Dave what the real problem was here. He said that banks typically look for a 3 to 1 ratio with these types of transactions. That is, for every dollar you want to “borrow” – in this case, that I want to send in daily
ACH transfers – the loan officer wants to see 3 dollars in your account and/or as equity on your balance sheet. My company was too highly leveraged (translate: I didn’t have enough cash on hand or equity on my
balance sheet) to qualify.
Oh.
So that’s it. Now I understand. My perfect 10 year history meant zilch.
I wondered if Hatchet Girl knew about needed ratios. Had Anonymous Loan Officer at
the Business Risk Management Center, wherever that was, ever explained them to her? “No, I doubt it,” I thought. “She probably doesn’t even know what a ratio is.”
I was steeling myself for what I was sure
would be a final rejection from Janet. But a few days later she called to say my application was approved. I was both stunned and grateful. I felt like an unworthy yet incredibly fortunate serf who had been bestowed
undeserved favor from the Queen Herself. I fought the urge to grovel on the ground and kiss the feet of my benevolent benefactor. And as I hung up the phone, I stepped back momentarily from this image and wondered,
“My gosh, what’s happening to me?”
The next time I was in the bank, I asked Dave if he had put in a good word for me with Janet. He quietly nodded. And though he didn’t say so, the realization hit me: “That’s
why I was approved.”
So now I can make electronic ACH bank transfers, at least up to my maximum daily amount, which will save me hours of time. I will no doubt have days when the total needed for
transfers will exceed my approved limit; when that happens I’ll have to delay some transfers a day or do them the old way. But at least I can make ACH direct deposits. Finally. I feel like a worthy human being
again, though humbled by this experience of multiple rejections.
Why have I told this story? There are two lessons here.
First, as a factor needing regular cooperation from your bank, you must
understand how banks work. Financial ratios can mean more than your history, especially with large banks in which decisions are made by people far removed from your friendly local branch. And even more, a good word
from the right person can change a decision that might otherwise go against you.
Second, when clients come to you, remember that most arrive with their self-esteem bruised and battered by bank rejections,
just like mine was. But unlike me, they don’t have a Dave to put in a good word for them. Thus they come to you seeking the cash they sorely need but can’t get from Big National Bank’s Business Risk Management
Center, wherever that is. And they’ve dealt with multiple frustrations from several Hatchet Girls of their own.
So be gentle with them. Do your best to help them. If you can factor their receivables,
routinely provide excellent service. If you do, you will appear to be riding in on a white horse and will have their utter loyalty.
And if you decide you want to transfer funds with ACH – which will save
a lot of time – come armed with a very strong balance sheet and a lot of liquidity. If you don’t, be ready for a curt and impersonal rejection -- probably from someone who not all that long ago was running around a
grade school playground at recess.
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