Finding the right bank account for your business
When you are busy working in a business you don’t want the hassle of switching bank accounts, but there are many points in your business journey where this could prove advantageous. This opportunity is often neglected by businesses as they grow, because they have so many other things to consider.
When first setting up a business account, many entrepreneurs go straight to the bank that holds their personal accounts. When you are starting out, this may seem like the easiest and most convenient option. But just because a bank has been good to you personally doesn’t mean that they’ll be the best one for your business.
By reviewing your banking situation, you have the chance to find the best deal for your business and it could end up saving you money.
Choosing your business account
When researching and choosing your new bank account, you need to weigh up all your different options and decide what will be most beneficial to your business.
Opportunity 1 – Free Banking – Switching banks means that you can take advantage of free banking opportunities. Most banks charge fees for handling money going in and out of the business for both physical and automated transactions. However, when moving to a new bank most will offer a fee-free introductory period, which can be up to 18 months of free transactions before they start charging your business for their services. Each bank will offer a different period of free banking but don’t just choose an account based on the longest duration of free banking, you need to understand what the charges will be once this period expires and you have to start paying the full fees.
Opportunity 2 – Better Overdraft Facility – Many businesses will require an overdraft facility which can cover the need for any short-term funding. Overdrafts are very useful for managing cash flow but when choosing your new bank account, it’s worth considering the interest rates and the arrangement charges for setting up your overdraft facility. You may also be able to negotiate the overdraft limit and you should find out about the flexibility in being able to increase or reduce the limit according to your business needs.
3 top tips for negotiating your overdraft limit
- Justification. You need to be able to justify why you need access to the short-term funds
- Clarification. Explain how you will repay the borrowed funds.
- Security. Offer security in return for the short-term lending. For example, you can use personal assets, such as a car or house, to secure the overdraft. Interest rates of secured overdrafts tend to be lower.
Please remember that your personal assets may be at risk if you use them as security.
Opportunity 3 – Better Customer Service – You may also want to consider looking into the bank’s customer services. Some banks offer dedicated account managers/specialist advisors who’ll work with you directly. These advisors are very knowledgeable when it comes to managing accounts, providing information on investment services and even business planning. They’re also likely to be familiar with a lot of different businesses and contacts in your local area helping you build your local network. Building these relationships with your bank can be a great asset to help grow your business.
Opportunity 4 – Additional Services and Add-ons – There are plenty of additional services that are worth looking into before deciding which bank to switch to. For example, you may need higher ATM withdrawal limits, these limits will differ per bank. Some banks will also offer free email and text alert services to remind you when payments are due to help you avoid incurring any additional charges on your account. If you’re a business that does a lot of trading abroad, an account that has free currency exchange could be more valuable allowing you to move money without being charged. These are just a few services that banks offer, so it’s a good idea to find out about all the other services available that could be useful for your business.
Comparing business accounts
Using comparison sites such as Moneysupermarket or Know Your Market can make it easier to find out about all the business account options available to you. You can compare key features such as interest rates, overdraft facilities and free banking periods, helping you choose the best account.
Switching banks accounts with ease
Switching bank accounts is seen by many as a huge and time-consuming task. Some entrepreneurs worry that it could impact the appearance of financial stability. Others are concerned that the process of switching accounts will interrupt business activity and that there will be issues with changing existing standing orders and direct debits.
We have good news for small businesses. There’s a way you can remove all the hassle and stress of switching accounts, allowing you to strengthen your position with your finances.
If your business has fewer than 50 employees and an annual turnover of under £6.5 million then you can use the Current Account Switch Service. This free service introduced by the government has made the process of switching accounts much easier for small businesses, allowing accounts to be moved in just 7 business days. This includes the transfer of all your outgoing payments, including standing orders and direct debits.
> Find more information on the Current Account Switch Service.
How to prepare for the switch
Once you have chosen your new account, you can get ready for the switch. If you’re going to use the Current Account Switch Service, check your bank or building society is participating in the scheme.
A key part of making the switching process as easy as possible is getting your paperwork prepared. Before you can open your account with your new bank, they’ll need to carry out security checks. You’ll be asked for information and documentation such as:
- The name of your business or charity
- Your trading address
- Funding requirements
- A Companies House registration number
- An HM Revenue & Customs certificate
- A recent utility bill or statement relating to the business
- Directors and business partners may be asked for personal information such as a passport, driving licence or bank statement.
If you’re a sole trader or limited company, you’ll need to provide additional documentation. UK Finance, the industry body representing banking organisations in the UK, has created a checklist of all the documentation you’ll need here.
Once you have all your documentation, you’ll be able to contact your chosen bank and they can begin the process of checking whether you’re eligible to open an account with them. When all the security checks with your new bank have been processed, you’ll be able to choose a date to switch your accounts over.
During the transfer time, you can continue using the services on your old account without interruption up until the switch day, so there is no reason to worry about any banking issues arising during the transfer period.
Bank Account Switch Day & Beyond
Once your switch day has arrived, you will be able to start using your new account as normal. Any payments made into your former account after the switch will also be automatically redirected to your new account for an indefinite period and the payer will be notified of your new bank details.
Don’t forget you can get more advice on switching your bank account from your accountant. Accountants are a great source of advice, which businesses often overlook. Read our 6 top tips to get the most out of the relationship with your accountant.
There is also regional support available to your business, where you can get help and advice to support your business journey.
> Find out more about the support available in your region.
For more information on the finance options available to your business, you can use our finance finder tool.