Small Business Essentials: Banking

Beginning a limited company for the first time can be quite daunting, in consideration of all the laws and regulations you must comply with as a company director.

One such rule is that a limited company must operate a business bank account in its own name, if It is to use the banking system at all. To repeat; this means you cannot use your personal bank accounts when carrying our cash transactions on behalf of the company.

Who provides business banking?

The first good question you may ask is “Who do I have to choose from?”. This is an easy answer – as you will find that all of the high street bank also contain substantial business banking operations. Building societies are aimed at consumers only, and therefore do not generally offer such services.

When you consider that there are 1,300,000 limited companies in operation in the UK – that also means there is an awfully large market for business banking. This article will help you select the right one for you by highlighting the factors you will want to consider when picking your perfect banker.

Local Access

Cash is the blood that flows the veins of businesses, and to some industries – like retail – access to cash, change and lockups are essential in the operation of their day-to-day activities. If you consider that a typical town has 2-3 high street banks represented – you may wish to restrict your choice to these brands if making the longer distance trips to other banks would start to add up financially over the course of the year. Alternatively you may deal in credit cards, BACs and direct debits exclusively, and therefore access to a local branch is simply not as relevant. In these cases you can widen your scope much further afield.

Interest

A business will seek to keep as little cash as possible to provide the largest return to the owner on the capital is possesses. However, a residual cash balance is always sensible to enable the company to pay debts as they fall due, and deal with unexpected costs and bills. In such cases it is optimal to place these business savings in a business savings account, which will attract a higher rate of interest than business current accounts, which like their personal counter-parts tend to offer a virtually non-existent rate.

Fees

You will quickly discover that many business banks offer heavily reduced fees for the first year or two since opening the account. This is a great incentive, but it is important to weigh up the pros and cons of signing up for a bank with higher standard charges in return for a more generous welcome package. A key difference between personal and business accounts is that business accounts tend to levy small charges for each transaction (like making a transfer to a supplier) which would otherwise be free for an ordinary individual. Therefore banking costs should be seen as a real cost of business, and therefore something you should seek to reduce wherever possible.

Advice

It’s clear that invoice factoring is not as straight forward as a simple loan – but this is perhaps a functionality of its usefulness and tailored nature to each business, so I wouldn’t let it deter you. Instead, if you need any advice on invoice factoring for your business, then take a look at Hitachi Capital, where you can get reputable and reliable invoice finance from the experts.

For small businesses looking to put their money to work, the Online Trading Academy offers investment tips and trading resources.

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