What to look out for when switching financial providers

Updated: 4 September 2022
Mark O'Rourke
Mark O'Rourke
Managing Director

With businesses forced to seek out new financial providers thanks to the imminent departure of KBC and Ulster Bank from the Irish market, Irish SMEs could be forgiven for looking at the prospect of switching with a healthy dose of wariness. Indeed, just 44% of KBC and Ulster Bank customers have set up their new account according to recent research from the Competition and Consumer Protection Commission (CCPC). In addition to the plethora of administration headaches associated with switching, there are a number of significant pitfalls and issues that businesses need to look out for to ensure seamless business continuity during the transition period.

So, what are the key things that Irish SMEs need to look out when preparing to switch?

Make sure to check out what overdraft facility is on offer

If you have an existing overdraft facility with your current provider, it’s important to realise that you won’t be allowed to simply switch this to your new provider. You will have to make a new application for the facility. This application process could take up to months in some cases, so it’s important to plan how you are going to fund your business in the meantime.

In addition, customers will be responsible for clearing the balance on an existing account before switching to a new bank account. Ulster Bank may be offering facilities to turn this overdraft debt into term loans, but there is lingering uncertainty as to where these loans might end up as the bank exits the market.

With over 70,000 customers at Ulster Bank given a six-month window to pay off their overdrafts, it will be difficult for some businesses to manage their cash flow while also dealing with the intricacies of reapplying for similar credit facilities that are like-for-like with their new institution.

Don’t forget to keep an eye on your Direct Debits and Standing Orders

If you were to switch banks in traditional circumstances, your old bank would be expected to notify any company you have a direct debit with of your new bank details so they can update their records. However, it remains unclear if KBC and Ulster Bank will have the facility to do this. Irish SMEs will therefore need to spend time contacting any company paid by direct debit to ensure they have the new details on file. So, make sure to keep an eye on essential subscriptions your business may have such as maintenance services, internet providers, email providers, transport fuel cards, required software that is used daily by employees or even something as simple as your bin collection service.

Your old bank should send your new bank a list of your standing orders in a traditional switcher model and they will set these up to go from your new account, however given the number of accounts that will be doing this, businesses are encouraged to set up the new standing order themselves, it is important that businesses double-check that these have been set up correctly and will be paid on time to avoid any issues for customers and employees.

And what about Credit Cards?

Another item to look out for is your credit card. Again, if you have any recurring costs coming from your Credit Card account, make sure you alert the supplier to your new card details otherwise there will be a lot of disruption. Also, to avoid paying stamp duty twice, be sure to request a letter of closure and a closing statement from your existing bank. When you give this letter to your new card issuer, they should ensure that you are not charged stamp duty again for that year.

Anything else I should look out for?

It should also be noted that although your account balance will be transferred over, Irish businesses will need to ensure there is enough flexibility for any fees that may be charged during the process of switching over.

Any missed payments made as a result of the switch will affect your businesses credit rating, as any new bank will note these missed payments as they run credit checks for any new funding requirements.

Be aware of the length of time it takes to open a business current account

Opening a new business current account will take around two months according to 65% of the banks’ customers in CCPC’s recent research – however this is expected to increase in the coming months due to the large volumes currently being processed due to the exit of KBC and Ulster Bank from the marketplace. As a result, it’s crucial that SMEs get ahead of the curve.

Also, bear in mind that your customers may also be switching bank account details, so ensure you remain in constant communication around this to ensure no issues arise.

And I’ll need to get used to using different banking apps?

Unfortunately, you’ll need to go through that tedious prospect of deleting and registering new apps for your mobile banking needs. You will have to ensure all the correct numbers are utilised for double authenticator steps and that all required staff members also download the relevant apps.

How can I prepare for these eventualities?

Once of the biggest issues for Irish companies is going to be the impact on their overdraft facility. Not having access to this for a period of time will hit some businesses hard.

To help ease the process, SMEs should consider utilising alternative finance solutions. For example,

businesses reluctant to take on more unnecessary loans while waiting for a new overdraft facility should be considering funding options such as Invoice Finance. This facility essentially offers businesses access to money outstanding from their unpaid invoices, helping them to access income they have already earned but not yet received.

This gives a company the option of using their own funds to improve day to day or seasonal cashflow fluctuations or finance bigger growth plans without having to borrow money. Indeed, with the upcoming departures from KBC and Ulster Bank the facility can be used to liquidate existing overdraft balances in your previous account.

Unlike a loan or overdraft, Invoice Finance does not involve ongoing monthly repayments. This revolving credit option means that once your invoices are paid, you can just continue the cycle – upload your invoices, draw down, use the funds and simply repeat. In addition to assisting with cashflow, it’s worth noting that Invoice Finance can also be utilised to fund a range of other growth scenarios such as investing in infrastructure or equipment, funding Research and Development, financing an expansion, Mergers and Acquisition activity or simply stabilising a business during turnaround.

It could also be a good time to review if invoice financing is a better alternative to overdraft facilities. For example, you may have a €100k overdraft secured against a €400k receivables book, but a switch to Invoice Discounting could result in a three times higher access facility.

So, although the departure of a number of banks has further complicated an ever-complex banking landscape in Ireland, there are a wide range of options for Irish SMEs to help ensure as smooth a transition as possible.