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Business banking also known as commercial banking refers to a company’s financial interactions with a bank that offers services like credit, loans, savings and checking accounts. Unlike, retail banking where common people like you and I can avail of a bank’s services, business banking, as the name suggests is intended solely for businesses.
In this blog, we dissect the what, why and how of business banking. Let’s dive in.
What is Business Banking?
When a bank, or section of a bank, solely works with companies & not individuals, that is known as business banking.
Corporations, partnerships, limited liability companies (LLCs), and sole proprietorships are the ideal candidates for business banking. Business banking offers products like asset management, business loans, and electronic fund transfer amongst other services, 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 hundreds of employees dealing with a substantial amount of money, being savvy with business banking is a must.
Difference between Business & Retail Banking
Quite often most small business owners & founders use retail banking services convinced that they don’t need business bank accounts. When in reality, business banking products are created to help make business money management seamless.
Here are some of the key differences between the two:
|Product Offering||Business Banking||Retail Banking|
|Checking and savings accounts||✅||✅|
|Certificates of deposits (CDs)||✅||✅|
|Money market accounts||✅||❌|
|Business credit cards||✅||❌|
|Business insurance & investment services||✅||❌|
|Asset management services||✅||❌|
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.
Pros & Cons of Business Banking
Benefits 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:
1. Clean & 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!
2. Makes Tax Filing Easy
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.
3. Safeguard against 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.
4. Helps Build Business Credit
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.
5. Lends Legitimacy to Business
Using a business bank while conducting transactions with suppliers, vendors, or clients makes your company more credible & legitimate.
Types of Business Banking
As the world evolved, so did business banking. Today we have both traditional business banking which operates from physical branches as well as digital banks that exist entirely online. Even though the services offered are mostly similar in these modes, digital banking has become more popular on account of its ease of use, smoother UI & smart dashboards.
Traditional business banking: These are organisations that are present in physical locations. They often provide the whole spectrum of banking services, such as credit cards, checking accounts, savings products, and loan products.
Digital business banking: This type of banking operates solely online. Online-only banks may typically provide banking products with cheaper costs and higher rates than their conventional counterparts since they don’t have to cover expenses like rent and utilities.
Best-in-class Business Banking Experience
Most SMEs sideline the importance of business banking simply because they believe that retail banking could easily take care of their smaller financial needs. However, according to a survey conducted by RazorpayX, businesses lose over 67 lacs in one single year on conventional banking systems.
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.
Features offered by Business Current Account
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
Also read: 6 Differences Between Current Account and Savings Account
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.
1. 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.
2. What are the most popular services that business banking offers?
Some business banking services that business owners can avail are cash or treasury management services, bank financing, fraud protection services, payroll services, etc.