Finance: Getting the Most Out of Your Bank

March 1, 2006

Your bank is the financial institution you probably deal with more than any other. Are you sure your money is in the right one - and that you're taking advantage of all it has to offer?


Let's say you've got the basics well in hand: You have both corporate and personal checking and savings accounts and reliable access to credit. That's what most of us think banks are for.

Surprisingly, though, they also have other services - help physicians usually don't even know about. Here's your guide.

When you shop, be aware that physicians in general make attractive personal banking customers because their high income potential means banks are willing to compete for their business.

HR HELPERS

What else is out there? For starters, consider human resources tools like direct deposit for employee salaries. Mike Ramsden, vice president, group manager at Fifth Third Bank, encourages physicians to take advantage of direct deposit because it eliminates the need for an outside agency to prepare checks.

Automating the payroll process saves staff time - and could save the practice cash as well by allowing it to avoid the fees that often come with cashing checks from the main account. Many practices further streamline the payroll function by hiring a service to perform the actual computation; that company then controls the movement of payroll funds between accounts.

Furthermore, according to Tom Chana, senior vice president, division manager for Fifth Third, "Most large banks offer what's known as an employee banking service." In addition to dealing with a practice's physicians, "They'll have a package of services available for the receptionist, the bookkeeper, everyone else who's an employee at the practice." Because of the bank's relationship with you, your staff might get discounts on mortgages or perhaps a higher interest rate on deposit products - perks that can add to your attractiveness as an employer.

LOCKDOWN

The next tool to consider is a lockbox service. Basically, if you have a lockbox, payments come into the bank instead of into your office. The bank accepts them on your behalf through a post office box or processing center.

Alternatively, physicians can set up an electronic transfer of those payments directly from the payer's account into the practice's account via an automatic clearinghouse (ACH). The ACH, also known as an electronic funds transfer (EFT), is similar to a wire transfer and allows immediate access to the funds.

Why is this good? First of all, it generally means payments get to your accounts faster - that means better cash flow.

Lockboxes also do away with the need for someone in the practice to handle receivables. This reduces the practice's processing and archiving costs, but Ramsden points out that it can address other concerns as well. "A lot of times when we run into problems with clients, typically what we find out is that you have someone [in the practice] who was handling those items and there was some kind of theft, and this eliminates that."

Ramsden adds that lockboxes mean one less person handling patients' checks, too, so the service addresses their security as well.

You may already be able to skip some additional deposit trips to the bank by instead faxing (or submitting online) a request to move funds between accounts. Bob Franko, president of Beach Business Bank, says soon it will be possible to avoid manual deposits altogether, as check scanning is on the horizon.

Experiments are underway with a machine that scans checks and sends the images to the bank via the Internet. The technology is completely automated, and it currently works 85 percent to 90 percent of the time. That accuracy isn't high enough yet to warrant implementation, but Franko estimates that check scanning will be widely available within a year or two.

MARKET SWEEP

Because many corporate accounts, by law, can't earn interest, personal money market accounts are popular among physicians for managing practice assets.

Bear in mind that the number of checks you can write from these accounts each month is likely limited, and be sure to request a list of all account-related fees. Carefully question your banker, too, to ensure that any account you choose offers the versatility you need - high interest rates and a high degree of flexibility don't always go hand in hand.

Larger practices might consider managing their cash with sweep accounts, which are coming back into vogue with recent increases in overnight investment rates. Most institutions offer these accounts, which are another way of dealing with the prohibition on corporate interest and automatically transfer any funds over a set amount into a separate - interest-bearing - account. "There are a lot of options available for that account," says Ramsden, noting that overnight money market, treasury, and savings accounts are all possibilities.

The sweep and transfer happen automatically, "so someone every morning doesn't have to get in and look and say, 'Oh, we have $110,000 - we've got to move $10,000 over,'" Ramsden explains.

Note that the sweep account route really only makes sense for larger practices, or those that routinely maintain a sizable cash balance in their accounts. But this doesn't mean that even the smallest practices should let their cash sit idle.

Franko says a manual sweep process - ideally handled online - works fine for the majority of practices. "Doctors' balances generally just keep going up and up," throughout the year, so making a monthly transfer into a different account is a simple matter. This method may ultimately be preferable to the sweep account because it allows practices to avoid the hefty fees - up to $50 to $70 a month - that may come with them.

FINANCING 101

Most banks offer an array of financing products, some more tailored to physicians' needs than others. It's relatively easy to find specific instruments for starting a new practice, financing or leasing medical equipment, or buying into an existing practice, for example. Whether you have to use, say, your house as collateral for one of those loans may depend on the degree of experience and understanding the bank has with doctors, so shop around.

Many institutions now offer term loans specifically for financing malpractice premiums. Your carrier may offer a discount for paying off your yearly balance all at once, and those savings could easily outweigh the interest on the loan. "Almost equally important," says Chana, spreading the payments out over perhaps 12 months, "helps move cash flow. Especially if it's a group with three or four practicing physicians."

Another way to take advantage of discounts offered for paying cash up-front - or buying in bulk - is through products like Fifth Third's Multi Card, basically a credit card for the practice. Like consumer cards, many of these corporate cards include a rewards system that gives cash back, airline miles, and so on.

Ramsden says physicians use the cards to pay for supplies like a year's worth of surgical gloves. "So not only do they get the 30-day grace period for the accounts payable, but the [vendor] is paid immediately because it's a 'cash' transaction ... so then they get a discount on that side. But then also they get the reward at the end."

He knows of smaller practices that pay even their utilities through credit cards like this one, then simply pay the balance off at the end of each month. Like the lockbox, a full-featured corporate credit card is a good way to consolidate processes and maximize oversight.

THE SAME ... BUT DIFFERENT

Whether the bank you choose to deliver these services to your practice is small or large, local or national, it's imperative that the institution have direct experience with practices that are similar to yours in terms of size, makeup, geographic area, and volume. Franko says banks should have this kind of information readily available, so ask for it.


"Financing medical practices, whether they're small or large, is a little bit different in the banking world than financing your regular tool-and-die shop or a window maker," Ramsden points out. "They build up receivables all year - their cash balances - and at the end of the year the doctors take out what's left. That's their compensation." As a result, there's typically no cash left in the practice at year's end, so it essentially starts from scratch each year.

Because no cash-retained earnings value builds up from year to year, "The cash flows in medical practice are very different than those of a typical company. ... You want to deal with someone who understands that," Ramsden cautions.

Franko mentions another aspect of the unique cash flows in physician practices: privacy, one of the reasons some might feel more comfortable with a nonlocal bank. He describes a hypothetical scenario: A group of physicians builds up hundreds of thousands of dollars in a money market account, which they plan to settle out in December. During the year, physicians in the practice don't necessarily want the local teller at the bank to be able to track the account balance.

Franko explains that physicians could worry that, "One of their employees might come and ask for a raise, and the doctor says, 'I can't afford it.' Then the employee says, 'Well, my sister works as a teller over at such-and-such bank, and she said you've got a couple hundred thousand dollars over there.'" Beach Business Bank, for one, has a "fully integrated Internet banking system," so its physician clients can avoid situations like this by originating a standing online ACH transfer to a remote bank on a given day each month.

It should be noted that this isn't necessarily likely to happen, as the vast majority of bankers take client privacy as seriously as physicians do. If a teller did publicly disclose information, most banks would consider the breach grounds for immediate termination.

PRIVATE LABEL

The services described above are typically delivered by a dedicated division of the bank - one that deals either exclusively with physicians, like The Doctors Bank division of Beach Business, or one that handles small businesses in general. These so-called private, or premier, banking services can be likened to the concierge medicine trend: Clients enjoy a single point of contact with the financial system and receive a high level of attention, tailored to their personal needs.

Chana explains, "More often than not, a private banker is someone who has commercial lending background training, so this individual can provide lines of credit or term financing. At the same time, the banker has a background that can provide for all the individual needs, whether it's an equity line or a home mortgage, or introduction to other services. A private banker really is a conduit to all the services that a financial institution can provide, both on the commercial side as well as individually."

Franko has run the private banking groups of more than one bank and says, "The way we used to describe it among ourselves was the 'walking the dog division.' We do everything for you, including walking the dog." He explains that this refers to the fact that many private banking clients "really didn't understand business."

According to Franko, it's imperative that bankers have an understanding of how valuable - and limited - the physician businessperson's time really is. Chana and Ramsden agree that this knowledge is a crucial result of having a client list focused, at least on a division-wide level, on physicians.

They also say it's imperative for your bank to offer a comprehensive menu of online services to minimize trips and maximize convenience. Ramsden points out that physicians' long and varied schedules often make it impossible to take care of tasks like banking during regular business hours.

And although the relationship managers who typically serve private banking clients may not walk the dog, they often handle a host of other time-saving chores. It's not uncommon for these representatives to personally take papers to their customers for signature, pick up deposits, and the like - even Franko himself has delivered documents to physician clients at home on Sundays.

In addition to courier and adviser, Ramsden describes the relationship manager as a consultant, someone who has "the ability to sit down with an individual and look at their financial statement and make recommendations on helping out with investments or trust planning or insurance planning," in short, helping the client through the stages of the life cycle.

FOR LIFE

All the bankers Physicians Practice spoke with mention the physician financial life cycle, which again differs from that of other professionals. Like their practices, doctors themselves have unique fiscal characteristics.


These distinctions begin with residency. "At that point in [the physician] life cycle, they have a high amount of debt and a low amount of liquid assets," says Ramsden. So when shopping for a banker, he says, "You need someone that hopefully can start off at that point and take you through your entire life cycle."

Physicians should assemble a team - consisting of an accountant and an attorney in addition to the banker - to steer them through the stages. During the first part of the life cycle, that means simple things like checking and savings accounts and perhaps personal loans. Later on, physicians may need help putting together a business plan, handling brokerage accounts, or overseeing long-term money management strategies.

To find this kind of life cycle guide, Franko suggests spending some time talking with any prospective banker. In addition to questions about specific products you're considering - fees, interest rates - ask how well that
person understands your time constraints and your business. Especially when borrowing money, physicians "want to make sure that they're dealing with a banker who understands the way their business model works."

All good questions to keep in mind, but Chana notes that, "It's really up to the banker to profile the client" to obtain a thorough and accurate financial picture rather than just "providing product." If you feel you're getting cursory service, look elsewhere.

In the end, says Franko, "A banking relationship is a very personal relationship, so if a doctor has a personal relationship with a local banker, and he's satisfied with it, that's the right thing to do."

Laurie Hyland Robertson is a managing editor for MedIQ, the parent company to Physicians Practice. She can be reached at lrobertson@mediq.com.

This article originally appeared in the March 2006 issue of Physicians Practice.