The same rule applies to the relationship between a company and its banks. What the lender sees – financial statements, cash flows, credit facility requests – is simply a reflection of how the company behaves day to day.
A strong banking relationship is not built at the annual credit review. It is built day by day, through open, continuous and transparent communication, with the aim of establishing long-term trust.
Why should I worry about communicating with the bank every day if the credit review happens only once a year?
Because the annual review is merely the moment the company stands in front of the mirror. Yet that image is the sum of everything that happened beforehand. You cannot fix in a single day what you neglect when no one is watching.
Transparency is the first element that determines the quality of this relationship. Communicating accurate, up-to-date data – even when it reveals difficulties – keeps the image clear. A company that hides a problem does not eliminate it; it merely postpones it. The bank will find out anyway, but later, with less room for manoeuvre to act together.
The second element is the continuity of communication. A company that only makes contact when it needs credit sends a clear, albeit unintentional, signal to the bank: the relationship exists solely for the sake of the request. Conversely, a company that keeps the bank informed even when it is not asking for anything builds a relationship that holds up better when a request is actually made.
The third element is adherence to agreed rules: timelines, covenants and signed commitments. Honouring them consistently is what lends credibility to everything else, as it shifts the banker’s assessment from words to behaviour repeated over time.
We touched on this a few weeks ago regarding corporate financial literacy: when a private equity consultant evaluates a target company, they often seek information from the very bank that handles its accounts. If the banker gives a precise answer – demonstrating a thorough understanding of the company and its management – the perceived value will be higher than the financial statements alone would suggest.
That precise answer does not happen by chance. It is the reflection of a relationship built day by day, not one patched up at the last minute like a detail to be fixed in front of the mirror.
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Kenning Consulting accompanies small and medium-sized businesses in building a growth plan supported by management control tools tailored to their development stage.