Opening a business bank account is necessary to separate a business owner’s personal and business expenses. Every business involves multiple transactions where funds are bound to be debited from and credited to the bank account frequently.
As such, a separate bank account becomes mandatory to manage a company’s accounts and finances professionally. Opening a business bank account requires more effort, documentation and vigilance compared to a regular savings account.
Let’s discuss how opening an online business account will help your business!
What are Business Bank Accounts?
A business bank account is a specialised current account that helps account holders separate business transactions from personal finances. It can be opened in the name of a business; hence, one can send or receive payments using the business’s name.
Different types of business entities including sole proprietorships, partnerships, limited liability partnerships, and private and public limited companies can easily open and operate such accounts.
What are the different types of Business Bank Accounts?
The 7 different types of business bank accounts are as follows:
- Regular Current Account
A regular current account is the most versatile and widely used form of business account. It helps in receiving and sending money, managing payroll, expenses and other basic financial tasks which keep the business running. It comes with a business debit card and chequebook to manage transactions along with internet banking and mobile banking facilities.
- Merchant Account
A merchant account is necessary if a company accepts debit and credit card transactions or e-commerce payments. When a customer pays a business entity, the money gets deposited into this account and then automatically gets transferred to other business bank accounts after processing.
- Money Market Account
A money market account is a type of business bank account for companies that wish to maintain regular access to their funds. It is an interest-bearing savings account that offers flexibility by blending some features of both business checking and business saving accounts. For example, it offers cheque-writing capabilities and debit cards for ATM withdrawals.
- Business Credit Card Account
A business can have a credit card account and use the card for emergencies or pay for miscellaneous items of a business. The main benefit of such an account is that it can help businesses improve or maintain their credit score.
- Certificates of Deposit Account
A certificate of deposit account is an alternative to a savings account which can earn a business more interest than the latter. However, a business owner doesn’t get access to the money in this account for a set amount of time, which can range from a few months to several years.
This account is suitable for businesses with excess capital. If an individual takes money out of a CD account before maturity, then they will have to pay a steep penalty charge.
- Trust Account
Professionals use a trust account in a business to keep an account of their unearned incomes. These accounts can hold different assets, including cash, bonds, real estate, stock, mutual funds and other investments.
- Foreign Currency Accounts
A foreign currency account is a business bank account ideal for transactions that involve paying and receiving funds in another currency. It is also known as a multi-currency or borderless account.
This account allows a business in sending and receiving funds in multiple foreign currencies and can be maintained by an onshore or offshore bank. Furthermore, this money can even earn interest depending on the account.
What are the features of Business Bank Accounts?
Business bank account holders get access to several other features which are usually unavailable to regular account holders. The features are as follows:
- Layout payments to employees and workers in the form of salaries and wages.
- More accessible accounts for business transactions.
- Carries out transactions with other countries that involve the use of foreign currencies.
- Carries out credit transactions and cheques with other businesses and suppliers.
- Provides protection to LLC or corporation status.
- Helps while acquiring a loan.
- Offers various discounts and deals.
- Provides e-commerce facilities and payment capabilities.
What Are the Benefits of Opening a Business Bank Account?
The primary benefits of opening a business bank account are:
- Separating business finances limits personal liability.
- Expense management becomes easier & more organised.
- Avail benefits of business tax deductions without triggering an audit.
- Improves business credibility by making payments directly to a business rather than a personal account.
- Availability of credit options to use during an emergency.
- Provides purchase protection to customers along with their personal information.
How to open a Business Bank Account?
The 4 easy steps to open a business bank account are:
Step 1: Choose your preferred bank or financial institution/platform where you wish to open your business bank account.
Step 2: Prepare the documents required to submit before opening the account. The documents should provide information on the employer identification number, business owner identification, business details, agreements, etc.
Step 3: You may open the account through the financial institution’s online platform or by visiting the branch of your preferred bank. The online process might vary from one bank to another.
Step 4: Submit the required documents along with the application form. After the verification process, your online account for business transactions will be set up successfully.
Future Forward banking with RazorpayX:
RazorpayX was born out of the need to deliver the best experience for merchants. It reimagines how businesses manage money flows and simplifies banking for Founders, CXO’s Chartered Accountants and finance professionals.
RazorpayX is a full-stack banking suite that supercharges the current accounts and
- which provides end-to-end automation with powerful features like Automated Accounting, OTP management, Maker-Checker Flows,
- Corporate Cards with 20X higher limits
- Automated Vendor Payments
- Forex Services
- Payroll – India’s ONLY payroll with Full compliance automation, Employee Insurance management and TDS filing)
However, maintaining the day-to-day transactions via such an account can become tedious for companies, especially start-ups.
Frequently Asked Questions
When should you open a business bank account?
An individual should open a business account before accepting the first payment for their company’s goods and services. It is typically opened during the company’s incorporation process.
What are the things to consider before opening a business bank account?
The 3 essential things that should be kept in mind before opening a business bank account are:
Minimum balance requirement and withdrawal rules of the account.
Account maintenance requirements.
Sign-up bonuses or any other bonuses
Is it better to apply online or in person while opening a business bank account?
An online application for opening a business account is always better as it is less time-consuming. An offline process would take more time as it involves multiple rounds of manual review, documentation, etc.
Do you need both a business checking and savings account?
Ideally, a business should have both a checking account and a savings account to separate funds for various particular purposes. Having a savings account provides access to liquid funds during emergencies.
How many business bank accounts does one need for a small business?
There is no limit to the number of bank accounts business owners can open. One can open multiple current accounts with the same or different banks whenever necessary.
What is a free business checking account?
A free business account does not incur a monthly maintenance fee. However, in most cases, one needs to maintain a specific minimum balance to avoid penalties.