Using Kiting Systems To Improve Customer Relationships
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I previously wrote an article on check kiting and promised a follow-up entitled, "How banks can use their kiting system to improve customer relationships". Well, here goes.
What if we thought of kiting as an opportunity? Got your attention? Here I'm talking about the cash flow kiters, the most prevalent ones. The pure kiter is a different ball game. He's out to get you; he wants your money – that's it.
In my last post on this topic I described a kite as an unnegotiated, unsecured, uncompensated line of credit. It looks to me like you've got a very good mechanism for identifying candidates for a credit relationship. They clearly need it, they just went about it the wrong way.
Let's look at the cash flow kiter. They have an ongoing relationship with the bank, some years long. They are tied in with a variety of services. They've made a bad choice about how to solve a short term problem. You can fix that. Be proactive with that customer. Create a partnership with him for the betterment of his business and your relationship. The worst that can happen is that you'll find out he really isn't worthy of credit and you can tighten the controls of account use, ACH origination, and other products they may be using in the payments arena.
In one class in the MBA program I completed, the professor had a thing about banks doing a customer a disservice by lending them more than they really needed. So we did an exercise where we were lending teams all given the same scenario, and we were supposed to develop a presentation to our boss about what kind of loan we were going to offer this company. We all got the same data, but could ask for more, if it was available. There were no restrictions. The winning team offered a cash flow line of credit, with automated draws and payments, and top side controls that triggered a review of the company's sources and uses of funds (more along the lines of how much, not why). Their presentation included graphs of the company's cash flows, in and out, and their cash on hand as well as near cash (tracked separately). The cash flow line of credit was structured to be at a level that cut off the peaks and put them in the valleys. The professor loved it.
The point here is that if this approach was taken one of two things would happen. The customer really didn't want to kite, and the relationship with the bank is much improved. The customer's success potential is stronger because they don't have unnecessary debt and aren't taking the risk of being splashed across the paper as a crook. The bank makes more from the relationship, can recognize its risk, and gains a happy and loyal customer who may spread the word about how fairly the bank treated him. If on the other hand the customer doesn't want the loan you can clamp down or cut them loose. You don't need that kind of customer anyway.
How do you deal with kiters? Is your approach punitive or reformational?