By Dan Mikes
Most churches piece their financial partner relationships together based on a chain of disconnected events or referrals. Interest rates decline and a decision is made to shop for a new mortgage lender. The daily banking relationship may have been established based on the proximity of a particular branch, thereby minimizing the risks associated with carrying cash deposits long distances. Building fund balances may be kept at an investment bank that was recommended by a church member.
Rather than continue to look at these banking relationships as separate silos, churches would benefit from undertaking a comprehensive review of their financial dealings. When pricing their services, financial institutions typically look at the totality of the relationship with the customer. Consolidating one or more relationships to a single service provider can result in significant financial benefit to a church. For example, a church may receive a lower interest rate on its mortgage debt if it moves its primary operating accounts to the lending bank.
Taking the time to visit with a qualified cash management consultant may also bring to the attention of church leaders numerous technological advances, new products and changes within the financial industry that can enhance church operations. A church’s operational efficiency will increase and its staff will have more time for the work of the ministry. Also, technology and the Internet have reduced the significance of the location of the physical bank branch.
Review financial partner relationships
If a church has mortgage debt, the recent decline in interest rates makes this a great time to review various financial partner relationships. Interest rates are again approaching historic lows and even if a church’s current loan has a prepayment penalty obtaining a current market rate may more than offset that penalty.
It is critical for leaders to seek an experienced church lender with a proven history and they should ask for a reference list of church customers. Leaders should find out how many full-time bank employees are designated to work exclusively with churches.
A bank that has made this investment and demonstrated a long-term commitment will be able to communicate with church leaders and guide them through the process. Their product features and loan covenants will also be tailored to meet the unique needs of a ministry. While the interest rate and loan fees are always the first point of focus, churches should not overlook these other factors. They may have a significant impact on future costs and operational and financial flexibility.
A bank with a demonstrated commitment to the church marketplace will also assist churches with cash management and banking needs. A church’s deposit accounts are probably on “account analysis” whereby deposit balances generate “earnings credits” which, in most cases, can fully offset the service charges a church may be incurring for branch services, check processing and any other bank services or products it’s using.
Make sure statements are analyzed
Church leaders should simply provide the bidding bank copies of their depository statements for three consecutive recent months and ask them to analyze transaction volumes and the products being used.
Banks will return with a comparison illustrating what their charges would have been for the same services. They should also show churches what their published earnings credit rates were during those same three months.
If church finance balances are sufficient to generate excess earnings credits leaders may be able to use additional banking services at no cost. If no additional services are desired, some portion of balances should be transferred to a higher yielding money market account, certificate of deposit, or a fixed income investment.
An example of one relatively new banking service which has been very popular with churches of late is the electronic deposit service (EDS). EDS is a fast, secure way for church leaders to deposit checks straight to their computers using a desktop scanner and software provided by the bank.
Church staff won’t need to spend time making tickets, bagging and tallying checks, nor will they have to drive to and from the branch to make the deposit. Churches will also have the added flexibility and convenience of making these deposits after banking hours. Also, data may be extracted from EDS for import into a church’s accounts receivable system.
Internet-based banking options
Leaders shouldn’t limit their search to banks that have a physical branch near their churches. Internet-based banking services enable churches to have access to their financial information, transfer funds between accounts, pay bills and initiate domestic and international wire transfers. Checks can also be deposited via EDS. Churches can retain their local depository relationship to handle cash and coin deposits. Those funds can be moved electronically, perhaps weekly. Leaders should ask the bidding bank to factor the cost of the additional bank relationship into their competitive analysis.
Innovative giving kiosk
Another new product that has been very popular with some churches is the giving kiosk. The kiosk makes it possible for donors to give electronically right from the church lobby. Debit and credit cards are more widely used than ever before. The kiosk enables the donor to use a simple touch-screen interface to make direct contributions to multiple designations (i.e. general fund, capital pledge, missions, etc.).
The kiosk also immediately prints out a charitable contribution receipt thereby simplifying tax reporting. Like the EDS check scanner, banks that offer this product to churches will offer the option of avoiding a hard dollar charge for the unit.
Churches should also consider the benefits of using a corporate credit card. Corporate credit or purchasing cards provide convenience for expenses related to travel, office supplies and other expenses.
Routine spending transactions can be made on the phone, Internet or in person.
Cards eliminate time-consuming exercises such as requisitioning checks, purchase orders and data entry. Church leaders can have online access to detailed card billing reports that are segregated by department thereby reducing the time spent monitoring transactions and completing expense reports.
Finally, rebates and travel awards are also available and if church leaders set up a card program with the same institution that has their loan and deposit business they probably won’t be asked to pay any annual card fees.
Many church leaders don’t realize that banks are also a great place to access the capital markets and shop for various fixed income investments. The objective at many banks is to serve their customers more comprehensively thereby enhancing customer retention. As a result, the mark up is thin and the church gets a better yield than they might at an investment bank. So if a church is looking for a better yield than it’s getting in its money market account, leaders should consider discussing investment options with their bank. Options include Repo and Euro Dollar sweeps, negotiable CDs, commercial paper and U.S. Treasuries and Agencies.
Church leaders should not hesitate to take the time to consider consolidating their borrowing and banking needs. Leaders may learn about new cash management strategies and products that will save time and money. That’s time and money that can be put back into the work of the ministry.
Dan Mikes is executive vice president of church and educational institution banking division for Bank of the West, Walnut Creek, CA. [bankofthewest.com]