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When starting a new venture, entrepreneurs have a lot to do before getting down to business, right from documentation to ensuring that they are legally sound. Business banking is one of the many aspects of this process that often gets sidelined in the face of bigger issues.
Getting a business account in time and having their finances set and sorted is vital to any organisation – just starting out, or otherwise.
With that, here’s a piece that tells you the what, why and how of business banking. Let’s dive in.
What is business banking?
Business banking refers to a specialised division of a financial institution that deals with corporate clients and businesses exclusively. It extends different products like assets management, business loans, and electronic fund transfer, specifically built to suit the financial demands of businesses.
Be it a small enterprise employing twenty-odd individuals managing day-to-day transactions or a large firm with employees by the hundreds dealing with a substantial amount of money, being savvy with business banking is a must.
Services offered by business current accounts
Business current accounts are designed to carry out day-to-day business transactions easily. There are several services that a business current account provides which are beyond the scope of an average savings account. These include:
- Facility to carry out any number of transactions on a particular day
- Facilitates smooth and frequent transactions – receiving cash, cheques, transfer funds, and the like.
- The option of overdrawing the account to manage liquidity in the short term
How does business banking work?
Financial institutions extend advisory and financial services to large corporations as well as small and medium enterprises (SMEs). They curate their business banking services to meet the specific requirements of every business.
At the same time, the majority of a bank’s profits typically come from its business clientele because of the amount of money involved in corporate loans and the large volume of transactions going through.
Banks derive an income from various charges that come with their business banking services. For example, as a current account holder, your bank may charge you a fee if you fail to maintain the monthly average balance (MAB).
Banks also make money on the loans they make to businesses by way of the interest they charge.
What is the importance of business banking?
Creating a business bank account is one of the first things that you as a business owner need to do when starting your new firm. And, here’s why getting it right is absolutely essential:
Clean and accurate bookkeeping
Starting a firm would mean creating a legal entity separate from you, and therefore, your personal finances. As a business owner, you must keep your money and your business’s funds separate, which will keep the tax woes that arise out of mixed funds at bay.
Needless to say, if your personal finances are mixed up with those of your business, separating them will be a time-consuming and difficult process.
Keeping a separate business account for all transactions would ensure that you have a clean record to provide your accountant with, every year. Bear in mind that you must keep all invoices and receipts to match up with your chequebook and bank statement. This will go a long way in keeping your financials clean and comprehensible.
In short, don’t mix your money with that of your business – open a business account instead!
Avoiding tax issues
Mixing business and personal transactions over a considerable period can make your financials look confusing. More often than not, this is a direct result of not having a separate business account. It is vital that you sort all of this out, especially before their taxes fall due.
This distinction is critical if your business is being audited. The accounting requirements for any business are generally complex in nature. If all your funds are together, the classification of personal and business transactions can prove highly difficult. This can get you into trouble with the tax authorities.
Protecting yourself from legal liability
Regardless of its size, a business is vulnerable to legal issues for a dozen reasons. To avoid those, for starters, you must create a separate business entity to minimise the risk of losing personal assets if a lawsuit is filed against your business. You have several options – from a sole proprietorship to partnerships and corporations of various kinds.
When it comes to liabilities, the first thing that the courts look into is whether the business has a dedicated bank account or not. They also check if business funds have mixed with your personal funds.
If your personal finances have mixed with business transactions at any point, then your personal assets may be at risk. This is why you must ensure you don’t use your personal bank accounts for business purposes after the incorporation of the business.
Business banking that works for you
Businesses are unique in their needs and styles of operations. But, business owners across the board seek business banking that is easy to work with, saves time and effort, and gives them a delightful experience by design.
Unfortunately, finding all of this with one business banking partner has long been difficult.
We decided to change that.
Armed with automation and built for future-forward businesses, RazorpayX takes care of your business banking, so you never have to worry about your money again.
With a RazorpayX Business Account, you can
- Scan and fetch vendor details, and automate your vendor payments
- Make tax payments from a single portal
- Put your payroll and compliance payments on autopilot
- Get collateral-free credit cards with flexible limits
… and a whole lot more.
Running a business is hard. Managing your business finances doesn’t have to be.
The long and short of it is that a business bank account, and working knowledge of business banking, are absolute must-haves for any business. The more prudent a business owner is about them from the get-go, the better it is for the smooth financial management of the business, all while staying on the right side of the law.
Frequently Asked Questions
What is the difference between business banking and corporate banking?
While business banking and corporate banking differ in several ways, the major difference is that the former is for small companies and the latter is for large businesses.
What are the different business banking services that a business person can avail of?
Some business banking services that business people can avail themselves of are cash or treasury management services, bank financing, fraud protection services, payroll services, etc.
How can I open a business bank account?
Here’s how you can open a business bank account:
1. Get your enterprise registered under the Companies Act. In addition, you must apply for the necessary licences and register under other acts like GST, Customs, etc.
2. Visit the website of the desired bank to apply online or the bank’s branch for an offline application.
3. Fill up all necessary forms and submit the required KYC documents to open the account.
After this, the bank will process your documents and open your account.