Over the past five years, we have examined the bank statements of more than 70 solicitors and small businesses, and have saved them over £1 million.
These savings come from three main sources. First, the contract with the bank, usually in the form of an arrangement letter, is often ignored. Unless the law firm has the time and ability to check in detail, it will not pick up on overcharges. We have found more than 2,000 errors and very few are in the customers' favour.
The second source of savings is that solicitors are not taking advantage of the banking and treasury opportunities. They can often improve the rates earned by tapping into the market opportunities. The third area is that the calculation of clearing is often wrong. This is a complex area, but essentially means the interest charged or earned is miscalculated because the bank's systems are not recording the clearing date properly. Only a detailed audit can reveal this.
Examples of savings are revealing. One firm agreed the overdraft facility with its bank each year. It was to be charged a rate of 3 per cent over the base rate. In fact, the bank's computer treated the overdraft as unapproved and charged a rate of 9 per cent over base. The firm received £19,500 the day after the review.
In another case, the bank entered bankers drafts into their computer as if they were cheques. Because cheques cleared two days later, rather than immediately for a bankers draft, interest was under credited by £100,000 over several years.
Another bank said a firm would receive “market” rates of interest when in reality it was left to the bank manager's discretion. The rates were well below the market and the bank paid £53,000 compensation.
One firm of solicitors had several branches each with a separate bank account. It was agreed with the bank that if one branch was in funds, while another was in overdraft, then the interest charging on the overdraft would be accordingly reduced. The bank failed to explain it was charging a 'turn rate' (an extra interest charge) every time the offset was made. It was not included in the annual letter from the bank confirming the arrangements, resulting in the bank refunding £38,000 after the review.
At one top firm with more than 20 partners, we found dozens of different accounts with little knowledge of what interest was being paid on which account. Client money was being kept in low interest deposit accounts instead of money market accounts.
The firm was also paying well over the odds for its overdraft and had not checked the set-off arrangements available. With changes made, the firm saved over £80,000.
The solicitors' internal accountant is not usually trained in banking procedures nor aware of the complexity of charging structures. It would be unfair to expect them to be able to evaluate the charges.
Many solicitors mistakenly believe their bank is providing a good service. However, our reviews often prove them wrong. An independent audit can establish whether the charges are correct or are in line with best practice.
With the pressures of modern practice life, the banking review is often considered low on the list of priorities even though it is simple to do and can be profitable.
The review consists of an experienced banking consultant checking the charges. Initially, a 12-month period is investigated and if problems or errors are revealed then more time will be spent in quantifying them. A full written and confidential report is then delivered to the firm's partners.