More than 95% of businesses in the UK are classified as small or medium-sized (less than 250 employees). These businesses are a very important part of the UK economy. Employing in the region of 12.6 million people, they show a combined turnover of £1,056,000 million per annum.
As a small business owner, you are important as a target customer to banks. However, banks are not a charity; they are in business to make money. They want to win and keep your business, as you are a valuable asset to them. Your business keeps them making money. Remembering they need you as much as you need them cannot hurt. Shop around. Don't just use the same bank you have always used out of habit.
Who to bank with?
The Competition Commission has stipulated the main four clearing banks must offer: either free banking services OR pay interest on business current accounts. This is to remedy excessive profits and pricing by the banks concerned. As a result, most banks most, if not all banks offer at least12-18 months free banking on business accounts. If large sums are being paid in, you can choose to have interest paid on the balance instead of free banking.
To maximize the free banking period don't open a business account until you are ready to start earning or raising your first invoice.
With free banking as a given, let's explore the other criteria decisions should be based on.
- The charges incurred, and the circumstances in which they are incurred.
- The banks investment policies and ethical standing.
- Recommendations from business peers.
- Services the bank offer.
- Additional services provide to small business.
- Will there be a dedicated bank manager for your business discussions?
Different tariffs do apply with some banks. These are in accordance with which services your business will use. Take time to think about this and identify how your business will use the banks offered services.
- Will counter services be needed, or will business be done electronically most of the time?
- Will deposits be mostly in large cash sums or by cheque?
- Will payments be made or received in any other currency than sterling?
- Are transactions going to be frequent small amounts on a daily basis or larger sums less often?
- Will direct debits be set up, or standing orders used?
If your preferred bank does not offer the options needed, or perhaps it offers some and not others, it is fine to use different banks for different purposes. However, do your homework, because banks often offer better terms to businesses that use them exclusively. You may be able to negotiate terms. In addition, if they know you are also using another bank they may use a higher charge band, which will make cost savings redundant.
Suggestions and comparisons of business bank accounts, visit the British Bankers Association here Business Account Finder
What type of Account?
Here are some things you'll definitely need:
- A current account--Used for day-to-day transactions, payments, and receipts.
- Instant access account--Holds cash not needed for daily operations.
- A longer-term deposit account with a higher rate of interest --funds that are not needed in the short term or at short notice.
Also, you may need:
- Foreign currency account - if dealing overseas.
- A loan account for any loans you may need.
- A merchant account - to accept debit or credit cards payments.
For face to face transactions, rent or buy terminals from the service provider. Customers MUST use their PIN
according to changes from Feb 14th, 2006. Signatures are no longer acceptable to pay for goods and services. You can be made liable for fraudulent transactions
. For website or phone payments use a provider who offers web or PC based software. There may be a set up fee, a fixed monthly fee and a per transaction fee. Transaction fees are set according to the amount of transactions and the average value of those. You can shop around for your merchant account.
Running Your Business Bank Account
Do build up a good relationship with your bank. It's important they know and understand the business and you.
Basic Ground Rules:
It will also help to:
- Unless an overdraft limit is previously agreed, do not overdraw the account.
- Do not exceed the agreed overdraft limit, without prior agreement.
- Know the terms and condition, and stick to them.
- Only allow authorized persons to make payments from the account.
- Keep records of all transactions.
- Keep, and examine, all bank statements.
- Cross check statements with business records, Follow up any discrepancies.
- File statements carefully. Copies will be charged for.
- Have regular meeting with bank manager handling your account.
- Send in a copy of your annual accounts.
- Notify immediately in the case of any problems related to your business.
Online banking is quick, easy to check your balances, and make payments with, but take adequate care. Ensure your computer is protected by up to date firewall and anti-virus/spyware software. Run these before logging on. If ever in doubt of correspondence or bank website pages, call the bank to confirm. It is very easy to duplicate websites and emails with the right knowledge. Hackers and Phishers use this, and your details, to access accounts. Never give out your personal details, or those of your business, online. Check the log in page you use has the correct link name in the browser bar. Banks usually have guidelines to watch for with scamming, and notify regularly on the latest dangers.
Remember to protect yourself if using an Automatic Teller Machine. Try to use the same ones and check if anything ever looks different. Small cameras are easy to place, and the numbers from your receipt slip can be used to hack accounts. Learn how new methods are being used and protect yourself against these at all times. Theft can, and does, happen this way.
Manage Accounts Adequately
As business grows, requirements will change. Regularly review business turnover and if the way you are using your accounts are still valid. Have the charges incurred changed? A constant checking habit will ensure you are always getting the best deal. Don't be afraid to ask your bank to match its competitors to keep your business. Remember, the squeaky wheel gets the grease.