What it means
Bank charges are an operating expense like rent or software, recorded in the profit and loss account, usually under administrative costs. They come in several shapes: a fixed monthly account fee, a per-item charge for each payment in or out, a percentage of every card transaction, and a margin on any currency conversion.
Overdraft and facility fees sit in the same family, though many businesses show interest separately. They matter because they scale with activity rather than with profit.
A business that doubles its order volume roughly doubles its transaction and card fees even if margins have not moved, so growth can quietly erode the bottom line. In low-margin sectors such as hospitality and retail, card acceptance costs are often the third or fourth largest overhead.
The first step in controlling them is to itemise a full year of charges from bank statements rather than trusting the headline tariff. Most businesses find charges they did not know they were paying: fees for paper statements, unused facility fees, or a card rate that reverted after an introductory period.
Once itemised, the two biggest levers are renegotiating the card acceptance rate and changing payment routing, for example moving high-value supplier payments off same-day rails. Foreign exchange deserves a special mention because the cost is buried in the rate rather than shown as a fee.
A bank quoting a 2% spread on a $200,000 payment is charging $4,000, but no line on the statement says so. Comparing the rate you received against the mid-market rate on the day is the only reliable way to see it.
Accounting treatment is simple but worth getting right. Bank charges are an expense in the period they arise, they are recorded gross rather than netted against income, and card processing fees should not be deducted from recorded sales.
Netting them off understates both revenue and costs, which distorts every margin calculation that follows.
In practice
Real-world examples.
Example
An online retailer notices its card processing costs have risen faster than sales. The cause is a shift towards premium consumer cards, which carry higher interchange, so the business switches to interchange-plus pricing and gains visibility over exactly what it is paying.
Example
An importer paying suppliers in euros discovers its bank applies a 1.8% margin to every conversion. On $3,000,000 of annual purchases that is $54,000, so the finance director opens a currency account with a specialist provider and negotiates the bank margin down on the remainder.
Example
A charity receiving thousands of small donations reviews its statements and finds fixed per-transaction fees consume a disproportionate share of small gifts. It adds a monthly giving option, which cuts the number of transactions sharply while keeping total income steady.
Think of it
“Bank charges are like the small fees you pay for using services-ATM fees, overdraft charges, or the monthly fee for a premium account.
Formula
Calculation
Total Bank Charges = Account Fees + Transaction Fees + Card Processing Fees + Currency and Other Fees
Bank Charges as a % of Revenue = (Total Bank Charges / Revenue) x 100
A cafe group with $900,000 of annual revenue reviews a full year of statements. Of that revenue, $600,000 is taken by card across 12,000 separate card transactions, and it makes 1,800 outgoing payments in the year.
Account fees = $45 a month x 12 = $540
Transaction fees = 1,800 payments x $0.35 = $630
Card processing = (2.9% of $600,000) + (12,000 x $0.30) = $17,400 + $3,600 = $21,000
Currency and other fees = $1,200
Total bank charges = $540 + $630 + $21,000 + $1,200 = $23,370
As a share of revenue: ($23,370 / $900,000) x 100 = 2.6%
Shaving the card rate from 2.9% to 2.3% would save 0.6% of $600,000, or $3,600 a year, for the cost of one negotiation.Case study
Seen in the real world.
Tilbury Lane Coffee is an illustrative four-site cafe group invented for this entry. Its owners knew bank charges existed but had never added them up, treating them as background noise on the statement.
A single afternoon spent categorising a year of transactions produced a total of $23,370 against $900,000 of revenue, or 2.6%. Two surprises stood out: an unused overdraft facility fee of $600 a year on an account that had not been overdrawn since the pandemic, and a card rate that had quietly stepped up from 1.9% to 2.9% when a two-year promotional deal ended.
In this fictional example the group cancelled the facility, moved its card acquiring to a competitor at 2.3%, and encouraged contactless payments over cash to cut branch deposit fees. Total charges fell to roughly $17,500 the following year, which on a 6% net margin was worth about $98,000 of extra sales.
Watch out
Common mistakes.
- Netting card processing fees off sales, which understates both revenue and costs and quietly distorts gross margin.
- Assuming the headline card rate is what you actually pay, when premium and commercial cards usually cost noticeably more.
- Ignoring foreign exchange spreads because they appear as an exchange rate rather than as a fee line on the statement.
Questions
People also ask.
Are bank charges tax deductible?
In most jurisdictions yes, as an ordinary business expense, though loan arrangement fees may need to be spread over the life of the facility rather than expensed all at once.
Should interest be recorded with bank charges?
It is cleaner to keep them separate, because interest relates to borrowing and is analysed against debt, while charges relate to transaction volume.
How often should I review bank charges?
An annual review of a full year of statements is enough for most businesses, with a mid-year check if transaction volumes change sharply.
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