By Nick Biggam, Commercial Director at Advanced Payment Solutions (APS)
For anyone getting started in business, setting up a business account will be a crucial stage. Many start-ups leave decisions around this too late, unaware of potential complications and time delays this can involve, at a time when they want to concentrate on getting their businesses up and running.
Before you sign up to anything, make sure you know all the options available and find out what’s going to work best with the type of structure you operate under: sole trader, limited company or partnership.
Business Accounts — What’s Best for Your Business?
High Street Business Accounts — If you want to bank on the High Street you will need to pass a credit check before you’re offered a business account, which could make applying more difficult. However, if you’re also seeking additional finance, this may be a benefit. If you do choose to go down this route, look out for special deals or accounts tailored to start-ups. Just be aware that if you choose an introductory offer, when it ends, you’ll probably pay for many of the features— even if you don’t use them.
Business Savings Accounts — Although you may be in the start-up stage right now, once your business grows and turnover increases, you may want to separate profits from the money needed for day to day operations. Scour the market for accounts offering the best available interest rate — and get that money working for you.
Business Current Accounts from non-High Street Banks — These tend to concentrate on offering the features you’re most likely to need to manage your business finances efficiently and you can usually open one without a credit check. This means they’ll often be much quicker to open, but may not include an overdraft facility from day 1. One particularly useful benefit is that they tend to come with a low annual fee rather than the relatively high monthly fees often charged by banks.
Personal Accounts — If you’re a sole trader, there’s no legal issue with using a personal account for business, but it’s best not to mix personal and business transactions together, as it makes it harder to complete tax returns and monitor cash flow.
What Account Features Does Your Business Really Need?
When considering your options, make sure that the account you apply for offers value for money on services that are vital to your business. Be wary of paying for features you’re unlikely to need and features that you’d like, but aren’t available.
Account Manager — This may be useful if you feel that you need extra help with running your account, but after any introductory offers are over, you may end up paying for access to an expert that you rarely contact.
Overdraft — As a start-up, if you’re offered one, it may come with a lower limit and higher fees. Retail banks, online bank accounts and some prepaid accounts all offer them, so if you think you’ll need one, have a look around for accounts that offer overdrafts to start-ups, as well as the other features you’re looking for.
Software — Some banks and providers offer access to accounting software as part of introductory offers, but you’ll usually have to pay for this service once the offer ends. It may work out cheaper in the long run to purchase your own software right from the start.
Corporate Expense Cards — Because these can involve credit checks on you and your track record as a business, you may not qualify for these straightaway. But prepaid expense cards are a great alternative, as you just pay money into the cards’ account and then employees will have the ability to pay for those vital expenses on the move.
Online and Mobile Account Management — Make sure that the provider you choose has the right account management tools available, such as online banking or a mobile app to make reviewing your balance and transactions easy when you’re on the move. It could help you make purchase decisions, avoid becoming overdrawn and reduce the risk of bouncing Direct Debits, which in turn could hurt your credit rating.
What if I Have Bad Credit?
It’s probably no surprise that having a poor credit rating will make it harder to open a business bank account if you’re about start up a limited company or limited liability partnership, as these both usually entail credit checks on the Directors. You may find it a little easier to apply for a basic business bank account without any credit facilities.
If you’re starting a business as a sole trader, you can in theory just open up a basic personal bank account, but don’t mix business and personal transactions together — it’ll make doing tax returns a nightmare.
If you do struggle to get approval for a business account on the High Street, online prepaid accounts, such as the Cashplus Business Account make a great alternative. This offers many of the features you’d expect from a traditional business bank account, but there is no credit checks required just to open one. This account can also open the way to credit products in the future, such as an Overdraft.
There’s generally a monthly or quarterly fee for using a business bank account, but that probably won’t be the only fee you’ll be facing. So check the small print to see what you’ll be paying for and at what price, such as fees for depositing cash and cheques. If your business involves handling cash payments, look for an account that charges competitively for processing these transactions.
Avoidable Fees and Charges
If you keep a close eye on your account and take care of how you run it, penalties and fees needn’t become a drain on your balance. Here are things to watch out for:
Direct Debits - If a payment’s rejected because you don’t have sufficient funds to cover it, expect a penalty fee. Note when Direct Debits are due to go out and make sure there’s enough money in the account to cover them.
Bouncing Cheques — Keep monitoring your account balance until you’re sure that all cheques have safely cleared. Your balance may seem healthy enough to cover a cheque when you write it, but by the time it’s processed, other pending transactions could make it bounce, resulting in a fee.
Minimum Balances— Check if your business account requires you to keep a certain amount in credit at all times. It can be quite easy to drop below the minimum balance if you have a lot of money going in and out, and that can trigger fees.
Late Credit Repayments — Not making credit card or loan repayments on time can be doubly bad news. Firstly, you’re likely to have to pay a fee for being late. Secondly, it may be noted on a credit file, which could make it more expensive and harder to get credit in the future. Note when you need to make repayments and include processing time to avoid being caught out.
Unauthorised Overdrafts — Be careful to check that you have enough in your account to cover all up-coming bills and remember to take into account any payments that may be pending. Straying into an unauthorised overdraft will usually cost you a penalty fee and could mean a fee for each day that you’re in the red.
Taking Card Payments
Being able to take card payments is vital to many businesses. It means your customers can pay you online, over the phone and in-store and will enable you to reduce cash processing costs and avoid issues with chasing overdue payments. To be able to enjoy this convenience, you’ll need to have an agreement with a merchant acquirer. High Street banks may help facilitate this, but it usually requires a separate application and again, may involve credit checks. However, you don’t need to have your merchant acquirer account with the same provider as your business bank account and you may be able to find a more competitive deal with an independent acquirer.
Not that long ago, the High Street banks had a monopoly on business bank accounts, but now there are lots of viable options out there and for many, the convenience, functionality and value for money offered by online card-based accounts will offer the best options.
Nick Biggam, Commercial Director at Advanced Payment Solutions (APS) has over 25 years’ of experience working for a number of major international organisations. APS is a leading payment solutions provider for businesses, local government and consumers and is the issuer of Cashplus cards, one of the most awarded prepaid card brands in Europe.