Choosing The Right Bank For Your Organization
Managing money is one of the most challenging tasks that nonprofits face. The job can be made much easier by partnering with a bank that properly serves the organization’s needs.
Banks differ considerably in terms of fees, interest rates and services. Larger commercial banks may not provide the same level of attention and support as community banks, while small local banks may not offer the cost savings or range of services that larger banks often provide.
KNOW THE FINANCES
Before a nonprofit can determine which bank best fits its needs, a number of key questions must be asked:
• How many deposits are made during an average month?
• How many checks are written in a typical month?
• Does transaction activity shift seasonally with months of very frequent or very infrequent deposits or withdrawals?
• What is the average monthly account balance?
Most banks set minimum balance requirements for accounts, and those requirements vary widely. If account balances fall below required levels, the bank may impose additional charges on those accounts, raising the nonprofit’s expenses.
Once the activity level of the organization’s financial transactions has been analyzed, the nonprofit can put together a request for proposal (RFP) spelling out its needs; this will be sent to candidate banks during the selection process.
SHOP AROUND
A nonprofit can often identify potential banking partners simply by asking its peers. Working from a list of at least three candidate banks is a good start.
“Most nonprofits use recommendations from other similar nonprofits and then send out RFPs,” says Nancy G. Wallace, a CPA who provides finance and accounting consulting to nonprofit organizations.
“Reputation is huge,” Wallace explains. “I would say that if no other organization that the nonprofit knows uses a particular bank, that would be a red flag.”
The geographic scope of a nonprofit’s activities is also a determining factor.
“If the nonprofit is regional or national, they will need a regional or national bank,” Wallace notes. “Same with international. But if they are local, then a local bank would work fine.” Community banks may also be willing to partner with local nonprofits for special programs and events.
In response to a nonprofit’s RFP, interested banks will usually prepare a detailed breakdown of the accounts most appropriate for the nonprofit’s financial profile and the fees and terms associated with them.
There may be room for negotiation. For instance, some banks will waive minimum balance requirements on nonprofit accounts, potentially avoiding additional costly penalties.
Meeting with bank officials during the selection process is important, says Molly Vanderloo, president of Vanderloo Financial Services, which consults with nonprofits. A face-to-face meeting allows the nonprofit to more accurately assess the bank’s willingness to service the account and potentially negotiate better terms.
SERVICES THAT COUNT
Most banks offer basic electronic services like online viewing of account activity, which can be crucial in protecting against fraud. Many popular payroll and accounting software packages—including Quickbooks, Sage 50 and Centerpoint Payroll—can be linked to bank accounts to print vendor checks, make direct deposits and compile transaction reports.
Positive Pay is another service that can help nonprofits guard against theft. Under Positive Pay, every time a check is issued by an account holder, the check number, account number and amount is electronically communicated to the bank. If the bank receives a check that hasn’t been included in Positive Pay data, it will hold the check for the account holder to review.
“I’ve had more than a few nonprofit clients over the years who had someone obtain one of their checks and create copies that looked enough like their real checks that they cleared their accounts,” warns Vanderloo.
Some banks offer remote deposit capture, a service that allows a nonprofit to scan checks for electronic deposit from any location that has an Internet connection. This added convenience makes it easier to deposit checks and accelerates the speed with which those funds become available.
Night drops are a valuable service for nonprofits that conduct fundraising events that generate cash proceeds after normal banking hours. Night drops allow the nonprofit to reduce the risk of keeping large amounts of cash overnight in an office or with personnel. When considering this service, it is also helpful to evaluate the location of the bank branch where the night drops will be made. Is the branch located in a safe area? Is it well lit at night?
“At least once a year, a nonprofit should request that its bank send it a copy of the list of signers for each of the organization’s accounts,” notes Vanderloo. “Banks sometimes forget to remove signers from accounts even after they have been notified to do so.”
CONVENIENCE MATTERS
Services and fees aren’t the only things a nonprofit should consider when choosing a bank.
For example, does the bank have branches close to the nonprofit’s office? Is it open at convenient times and days? Can nonprofit officials speak with a bank manager in a timely manner? Is the bank willing to provide a dedicated account representative who understands the nonprofit’s needs?
“A banker should be checking in with a client organization at least once a year,” Vanderloo says. “If you don’t get that once-a-year call, that’s a sign that the bank isn’t paying enough attention to the account.”