Bank fees can be a sneaky hole in your organization’s pocket, draining hundreds or even thousands of dollars each year if you don’t pay attention.

In working with a client recently, we noticed multiple bank fees for monthly service charges and overdrafts. Ouch! How would a donor feel knowing this is where donations were spent? Not very happy we imagine.

Not that the client was happy either. They just needed some tips on managing cash.

In Bloomberg’s August 4, 2017 email newsletter, we found this interesting blurb:

Bank overdraft fees are here to stay. This despised bank fee began decades ago as a simple service for customers without calculators: If you didn’t have enough money to cover a check, your bank saved you from bouncing it. Overdraft fees on checking accounts have risen since the recession and are now the leading fee category in all non-interest income. Despite reforms and new technology, one economist predicts fees could produce an annual $40 billion in revenue by 2020 across banks, thrifts, and credit unions.

We’ve noticed banks are more aggressive these days in charging for services. But with good management you can greatly reduce bank fees. For example it’s harder to find free checking, but it’s still out there. The best way to minimize bank fees is to understand your bank’s fee policies, plan your cash flows, enter transactions affecting cash promptly and monitor your cash balance in QuickBooks.

To that end, we offer a few tips.

Understand your bank’s fee policies

Our client mentioned above was being charged $29.95 in monthly service fees. That’s over $350 per year! On top of that they were being charged $12 for each bounced check.

Understand your bank’s checking options and required minimum balances to avoid service charges. Some banks offer accounts with low or even no minimum balances. They may offer a special deal for 501(c)3 nonprofits. Regional and local banks tend to offer better deals. If your bank is charging you a monthly service fee, investigate your options to avoid it or look around for a better bank.

Plan your cash flows.

No bounced checks means no bounced check fees.

Plan to have adequate cash on hand. Some organizations have consistent cash flows month to month while others experience swings. For example, many organizations see a surge of gift income in December. If you can become familiar with historical cash flows, you can do a better job of predicting future cash flows.

Start by running your profit & loss report on cash basis to get a feel for “cash in” and “cash out.” Once you have the profit & loss report open:

• In QuickBooks Online look at the top where it says Accounting Method and click the radio button for Cash.
• In QuickBooks Desktop, click the button for Customize Report, then click the radio button for Cash.

The cash basis option removes the effect of accounts receivable and accounts payable, so while it’s not a perfect cash basis presentation, it’s a good place to start getting an idea of cash flows.

Also consider the effects of balance sheet transactions. If you purchase fixed assets or pay down debt, for example, those transactions use cash even though they are not expenses. Therefore they will not show up on the profit & loss report, even when run on cash basis.

Anticipate routine expenses that are about the same each month, such as insurance or utilities. Keep a buffer in the checking account to cover routine expenses.

By considering how you have received and spent cash over the past 12 months, you will be more empowered to plan cash needs for the future.

Enter transactions affecting cash promptly.

Here we offer two suggestions.

First, enter checks into QuickBooks as you write them, not after they clear the bank. That way the commitment of cash is reflected timely in your books. You will see the reduced cash balance reflected on your balance sheet and in the QuickBooks check register.

A huge efficiency with QuickBooks is the ability to enter checks, save them to a print queue, and print them onto preprinted check stock. Besides entering the check timely for bookkeeping purposes, now you can avoid double work to both write and enter checks.

Don’t worry about QuickBooks adding the check into your books a second time when the check downloads after it clears the bank. QuickBooks will match the downloaded check with the transaction you already created.

Second, post downloaded bank transactions weekly instead of monthly.

QuickBooks Online works with most banks to maintain a continuous flow of downloaded transactions. This makes it handy to post (or match) downloaded transactions to your books more often than monthly.

QuickBooks Desktop can import transactions via a direct connection to your bank, though banks usually charge a fee for this service. You can avoid the fee by exporting a QuickBooks compatible file from the bank and importing it into QuickBooks. If you update often, it may be worth the convenience to pay for direct connect.

Monitor cash balances in QuickBooks.

Keep an eye on cash. QuickBooks provides multiple places you can quickly see your cash balances, assuming your books are up-to-date.

In QuickBooks Online, click on Dashboard and you will see an area called Bank Accounts with a listing of cash balances.

In QuickBooks Desktop from the Home page, click on Account Balances. You will see a drop down snapshot of balances in the bank accounts.

In either Online or Desktop, you can see cash balances in the balance sheet report. The balance sheet is a fundamental report you should refer to often. If you see numbers that don’t make sense, please seek accounting help to fix them.

Finally, if you do incur bank fees, record them to a separate expense account for bank fees.  That way you can see them in the profit & loss report and manage them better.

Don’t let the banks get away with your money! With a little attention, you can plug the leak in cash caused by bank fees. At the same time, you will also improve management of the organization’s cash flow.