A business account is one of the tools every company needs sooner than later. While most banks won’t charge you to open a business account, it requires careful consideration to ensure you open the account with a service provider that can keep up with your needs and growth.
Also, opening a business account is not as straightforward as opening a personal account. You need different documents and also to understand the type of business account you want to open.
This guide looks at everything you need to know on how to open a business account, the type of account you can open and even the factors you should consider when looking for a business account.
What is a Business Account?
Business bank accounts go by many names. Some people call them corporate bank accounts or company bank accounts. But they all refer to the same thing,
A business bank account is defined as a dedicated account for your business. It is where your company’s money is managed from. The account can handle everything from payables to employee payrolls and credit repayments.
A business account may also be a checking account or a savings account. In many cases, banks have similar offerings available for personal accounts. Regardless of the type of business account you choose, it will do the crucial job of keeping your payments separate from your company’s transactions. Also, bank accounts come with a range of benefits. These vary depending on the type of business account you open and the financial provider you choose for it.
Business accounts are not just suited for large companies. No matter how small your business is, opening a business bank account is always a great idea. Many financial institutions have extra support for small business bank accounts, with some perks dedicated to SME business accounts. Therefore, there’s nothing about opening a business account too early. Any time is a great time for opening a corporate bank account.
How Do Business Accounts Work?
With the emphasis on a business bank account, something about them must be different. Well, business banking is unique. It is tailored to aid businesses and companies to benefit from their financial decisions.
With the growth of companies, business account banking has also grown exponentially. More and more companies have warmed up to the idea of a business account. The aim of these business accounts has been for financial institutions to help large and small businesses make better use of the assets available to them and also to help them make sound financial decisions on their existing balance and creditworthiness.
One of the crucial aspects of business banking is that it protects your status as a company. A business account for your company legitimises your establishment. Banks also offer your company more services based on the account.
The services the bank can offer your business through the business account include short-term loans, low-interest credit allowances and even payroll management. Business accounts also carry enhanced security and safety from fraud.
Benefits of a Business Account
Establishing a separate business account is vital in running your small business. But unlike your personal finances, which might require only one bank account, your business most likely needs multiple accounts.
Opening a business account has many benefits and perks you can access from a personal account. Some of these perks and benefits include;
Limited liability protection
A business account helps limit your personal liability by keeping business funds separate from your personal funds.
No matter your business type, you should always separate your personal and business finances. A business account is the first and most important step towards doing this successfully. In case of a collapse, your personal finances would be largely safe from your business’s.
Purchase protection for customers
A business account is not just good for you and your business. It’s also good for your customers. Many banks and financial services provide merchant accounts as a business banking option. It provides additional purchase protection for your customers and protects their personal information when paying for items.
This feature significantly boosts customer satisfaction and reinforces trust in your brand, making it easier for customers to make purchases helping grow your business.
With a business bank account, you can make cheques for the business. It’s more professional than asking customers to make cheques to your name. The account also allows customers to pay with credit cards, which you can’t do with a personal account, and the employees can handle banking tasks on behalf of the business.
With a business bank account, you have more credit options than with a credit account and, in some cases, more competitive interest rates. The credit options available to you depend on the bank or type of financial institution you choose. Some provide an option for a line of credit that you can use in an emergency. Others might also offer business credit cards that you can use to build a credit history if your business has a bad one.
Easier finance management
It’s much easier to make financial decisions for your business when you know exactly how much money it’s making. Opening a business account can help you separate personal and business finances, making it easier to run the business’s finances.
There are many more reasons why opening a business account is a crucial step in the growth of your business. But these five are a great step in helping convince you of the importance of a business account if you’re uncertain about it.
Types of a Business Account to Consider
As with personal banking, there are several types of business accounts. Each serves different business needs, and in most cases, a business will need to open more than one account to fully meet its needs. It’s also possible for some businesses to operate one account. But all that depends on you’re the needs of the business.
A business checking account is a great choice for managing payroll, expenses and other basic financial tasks that keep your business running. This is also called a running account and is crucial to the everyday running of the business.
As the name suggests, this type of business is solely dedicated to helping your business grow its savings for that rainy day. The savings account helps you hold your earnings. Most businesses need a savings account in addition to a checking account.
If you plan to accept debit and credit card payments, you should choose a bank that can also help you set up a merchant account. Some banks also offer merchant services, which can be crucial in expanding the payment methods available for your customers. Multiple payment options make it easy for customers to make payments, drastically improving customer satisfaction and conversion rates.
Credit card account
You can use a business credit car for emergencies or miscellaneous items for your business. The main benefit of having a business credit card account is that it can help build and improve your business credit score.
Startup business account
In the UK, it’s also possible to find institutions that provide specific services and solutions to new and small businesses. These accounts are also available for freelancers and sole traders. Some banks and financial service providers even offer a fee-free period and business support tools to help you get your venture off the ground. These accounts prove essential for businesses getting off the ground.
Community and not-for-profit account
If you run a social enterprise, club, school, charity or any other non-profit, most banks can provide you with a dedicated account with low or no-fee banking. These accounts can also provide other critical features that make it easier to manage the organisations’ funds.
Some banks might offer more specialised banking options when looking into a business account. But these four are the main options available at almost every high-street banking. Every account’s features and functions differ, so you should carefully consider your options based on your business’s needs. For instance, some financial providers also offer multi-currency accounts for businesses wanting to trade overseas.
What You Need to Open a Business Account
Before opening a business account, you should ensure you have all the documents required to open the account. With business accounts, the threshold for the required documents is higher. To open the account, you will need;
Memorandum and articles of incorporation
You use these legal documents to register your business with the government and other entities. They help the bank understand how your business is structured.
If you form a company as a separate legal entity, to open a bank account, you will need the memorandum and articles of incorporation you filed with the House of Companies if you are the sole owner as part of the documents you provide to the bank.
If you choose to open your business account with a bank, they will most likely ask for your current business license to ascertain that you’re legally permitted to conduct your business in your current jurisdiction.
Asking for a business license also ensures that the business is accountable for all its actions, including finances and taxes. Before opening a business account, check with the local administration and other relevant bodies to determine if you need any business licenses. It will make the process of opening a business account smoother.
Proof of ID documents
You will need to provide documents that verify your identification. Most banks will require that you provide them with a government-issued form of identification. Some of the details they will ask you to provide include;
- Proof of ID such as a Passport, ID card or driver’s license
- Contact details, your phone number, and email address for the individual and business.
Proof of UK address
Banking providers may also want to see the following;
- Proof of a personal address in the UK. This can be in the form of a recent bank or credit card statement or council tax bill.
- Proof of business address in the UK, such as a recent utility bill or HMRC correspondence
Other details that might be required to open a business account include a Companies House registration number if you have one. Some banks will also ask for details about your business, including turnover, tax information and other capital.
The documents and information required will vary depending on the bank or financial provider you choose for your business account. Most services have an online resource where you can get a list of the requirements needed to open an account. This is a great place to start to ensure you have everything necessary at hand before starting the account opening process.
Things to Consider When Choosing the Best Business Account
Now that you’re certain you want to open a business account for your entity, you must carefully consider, among all the available options, which is best equipped to handle your business needs. Going through all the banks and challenger banks business account options can be tedious and time-consuming. Instead, you should consider these factors to determine if the options you’re looking into can serve your business’s interests.
Every bank and financial institution has different fee structures and features. Typically, business accounts have higher fees and minimum balance requirements than personal accounts. Also, different types of fees apply to the account, which can quickly add up and eat into the business’s profits. Some common account fees attached to business accounts include the following;
- Administration fee – This is your bank’s operative fee for owning the account. The fee can be charged annually or monthly.
- Cash payment fee – This applies to cash deposits and withdrawals from the account. ATM usage fees can also apply in this case.
- Automated payment fees – Some banks will charge you for pre-approved payments of recurring transactions. Check with your bank if this is the case.
- Manual payments or cheques – The fee for processing cheques and manual deposits. If your business is expected to make a lot of cash deposits, you should take a look at these fees in advance.
- Minimum balance charges – If you have a business savings account, the bank might charge a fee if you go below the minimum balance requirement. Ensure the fee is affordable, especially if you have a slow cash flow.
- Overdrafts – If your business account allows overdraft protection, ensure the overdraft fees are not exorbitant. Overdrafts can be a crucial credit lifeline for a business. But if the rates are too high, then it’s best to consider another alternative.
- Additional services – Specialised cards, upgrades, insurance, report generation and advisories are all considered additional services and might be subject to an additional fee. You should ask your bank if such services need to be paid for and what the fees are, if any.
- International transactions – International transaction fees include exchange rates, receiving bank charges, and administrative fees for wire transfer services. Get a good idea of how expensive it is to send or receive money, especially if your bank has suppliers and customers from different countries.
Account maintenance requirements
Various banks have different business account requirements that you must meet. If you don’t, you can incur fees and penalties. Most commonly, banks require you to maintain a certain balance. This minimum amount varies from bank to bank. It may be a daily or monthly minimum. If you have multiple accounts, the bank may count all of your accounts towards a combined minimum amount, or they might look at each account separately.
Some banks require you to spend a certain minimum amount on a debit or credit card tied to your account or use other bank services to avoid certain fees. Understanding these terms is crucial in ensuring you get the best deal for your business.
You should carefully consider which account features are must-haves when you’re comparing banks. As far as banking features are concerned, digital banks are the most progressive. They have the most advanced and impactful features. But some banks have also come a long way.
Some features you should consider when opening a business account include detailed analytics, the ability to deposit checks digitally, business debit cards, access through a mobile app, and receiving useful alerts on your phone, among others.
Take time to research the different account features available and choose the one with the features that make your business easier to run conveniently.
With digital banks such as Pay iO, your account can be integrated with leading accounting software, reducing administrative tasks.
A business account shouldn’t be accessed by the person whose name is on the papers. This is particularly vital for larger businesses. Your finance department, accountants and compliance officers, and others must also access the bank facilities.
Consider a banking system that has a robust and easy-to-use web portal that is easily accessible by various people and possibly with restrictions. Ensure they also have a mobile app so employees can access the information they need on the move.
Account opening process
With some banks and financial services providers, the account opening process can be a brutal one. Long processing times, truckloads of documentation, and outdated practices make what should be a short and painless process unnecessarily long and frustrating. Most banks today have streamlined and well-regulated systems for business to open their corporate accounts. With some, you can even open the account from the comfort of your office without ever having to leave your chair.
When considering where to open a business account, make note of the options with the best process to set up the account and see if you have all the verification documents they need to open the account. It should give you an idea of the effort required to open the account.
Carefully considering each of these factors when shopping around for a business account will ensure you find one that matches the most essential needs of your business.
Simple Steps on How to Open a Business Account
The process of opening a business account is much easier after all the considerations and research are done. Below is a step-by-step guide on how you can open a business account.
Decide the type of account you want
After doing your research, you should have a good idea of the type of business account that best serves your company. Most businesses could do with a checking account. In many cases, that’s all businesses will need, especially small businesses. However, there are other options, each offering unique benefits.
Business checking accounts
Business savings accounts
Accepting debit and credit card payments.
What to keep in mind:
Included monthly transactions.
Account and incidental fees.
Minimum balance required to earn interest.
Bundled merchant services.
Low transaction fees.
Most financial service providers require the business to have a regular business account to have a merchant account. You can check if this is the case with the financial service provider you have in mind.
Compare your options
Different checking accounts have different features, limits, fees and perks. Decide what’s important to you and your business, and then compare your options. As highlighted in the factors to consider, there are various aspects you should consider to help you choose the ideal one with the right features to service your business.
Consider your potential business growth
The greatest mistake most businesses make when opening a business account is not considering their future growth and opening an account with a bank that limits them. As your business grows, you must constantly go through the same arduous process of choosing the best business account again every several years.
When choosing a business bank account, you should look at one that fits your needs now and also in the future as you grow.
Transaction limits are one example of how a business account can limit your growth. If your bank has a very limited number of deposits and transfers each month, you may pay many costly fees for excess transactions later.
Another factor to consider is savings. You might not have much to stash at first, but will you be happy with your bank when your business and savings have grown?
You should consider going for a financial services provider that can cater to your current and future business needs.
Gather the necessary documents
Determine the documents you need to open the business account. The exact paperwork differs depending on the type of account you want to open and the financial institution you choose. In the least, expect to provide the following;
- Personal and business information
- Business formation documents
- Any organising or partnership agreements
Fill out the account application
Most banks and financial services will allow you to apply for an account online or over the phone to open the account. In other cases, you can download the forms, fill them out, attach the required documents and send them by post. You can also apply in person, which may take longer, but the upside is that if you have any questions, your banker can answer them as you go.
Fund your newly opened business account
You can open your business account with a zero balance. But others require an opening deposit, which varies depending on your chosen institution. Business savings accounts can have higher deposit requirements, depending on your chosen bank or financial institution. However, you can still open many with a zero balance.
Business accounts can be opened with no money and still require you to fund the account within a specific timeframe or the account for inactivity.
Set up your business bank account
After opening the business account and funding, it’s time to set it up. How you set it up depends on the features available with the account.
The best place to start is by downloading the bank’s mobile app and then signing up or logging in to the online banking platform.
Connect your new bank account to your business accounting software, if this is possible, with your account and any other relevant business tools. Many business bank accounts offer integration with popular accounting software like Xero, FreshBooks, Shopify, Gusto and QuickBooks, which help lessen the administrative load and help businesses stay on top of their finances.
When setting up the account, you can also add authorised uses and set the appropriate permissions for each user in the account. This is vital based on your business set-up. If other members within the business need access to the account, you can set the appropriate access to them. You can set up other alerts and establish recurring payments from your new business account.
The main business debit card will ship automatically with most businesses and should arrive within 10 business days if your bank offers these options. Additionally, you can order cheques and request additional employee debit cards to set up the account.
Tips for Choosing a Business Bank Account
Seeing how important it is to take advantage of business banking services instead of using your personal account, you want to ensure you carefully consider your options rather than rush into a banking relationship that won’t serve you well in the long run.
Here are some additional tips that you should consider to help you make the right choice;
Talk to other small business owners you know
If you know other business owners in the same industry as you, you can ask them what their banking experience has been like with the bank or finance institution you’re considering. You can ask them what they like about where they bank and what they wish they knew before they started their accounts. Such conversations could help you avoid the same pitfalls that have befallen other businesses and increase your chances of identifying a fruitful banking relationship.
Always read the fine print
Like every other business, high-street and challenger banks will print the favourable part of their terms in big and bold letters and hide the rest in fine print. You should take it upon yourself to look beyond the headlines. You should read through the fine print and the asterisk posted at the bottom of the page. You will be surprised by how much information you can obtain from these and how it might change your perspective about signing up with the bank.
You will learn about hidden fees and whether your accounts will be protected by the FSCS. These crucial details can make or break your decision about whether you should move forward with the provider.
Take your top choice for a test drive
Before committing to a bank, consider your experience as a potential customer. How would you describe the drive there if you decide to visit the bank in person? Was it easy? Did the staff make you feel welcome?
If you’re looking online, consider whether the website was easy to navigate. If you tried contacting customer support, how long did it take to have your questions answered? Is there a mobile app? Is it well-reviewed on the respective platforms, or are most comments complaining about how hard the app is to use?
All these are indicators you can use as a test run to gauge the kind of experience you can expect from the provider you want to open your business account with. If there are many complaints about their service, likely, you will also have problems with them. If you have a positive first encounter and there are many positive reviews about the provider, there’s a high chance your interaction with them will continue being positive.
Make sure the bank offers you everything you need
Everything might be pushing the limit, but you should have a list of priorities that every bank should meet for you to consider. Choosing a business account isn’t something you should take lightly. You should have key factors that a provider should meet. This will ensure you get the most value for your money and avoid being paralysed by having too many choices. Rank your key factors in order of importance or simply list the must-haves, necessary, nice, and not important.
You can then use the list to pick providers based on how their features match up with your key factors.
For most businesses, opening a business account is as easy as going to a local bank branch, enquiring whether they have a business account and opening one. In many cases, the business has to constantly switch accounts because they find the experience unsuitable and often disappointing. You can avoid such problems by being more proactive about opening a business account by taking more time, casting your net wide and ensuring you work with the most suitable financial services providers with your business’s best interests at heart.