Choosing or changing a Business Bank Account
Getting on with your bank – and your bank manager is vital for your business. Sometimes the terms of your business account or the service you receive no longer suit your purpose and you may consider changing accounts or even changing you bank. If so, it is always worth trying to negotiate different terms and conditions if your business needs change. When choosing or thinking of changing your bank account there are a few key facts you need before you can truly compare services.
Possibly the most important one for a new business is whether the bank has a business banking team, and whether your business would have your own Business Banker (can you meet him/her?). The quality of the advice a good bank manager can give your business may mean the difference between success and failure.
Of course you need to know the services and costs and details of charges and any additional charges or fees you may incur at any time.
Though it is essential that you can operate your business account by telephone banking or online, it is also important to many of us to have a local branch you can access easily especially if you need to pay cash in. In which case you may not be thrilled if the branch rarely sports more than one teller.
If there are incentives for new business start ups or bank account transfer, then this is a bonus.
When comparing banks, it’s a good idea to ask:
- whether the bank has a dedicated small business team
- what services they offer
- how much those services cost
- how charges are levied – if there is a fee per transaction or a one-off charge
- whether there are any additional charges – some banks charge you when they send out letters or if you exceed your agreed overdraft limit
- whether there is a local branch – especially if you need to make frequent cash transactions
- if there are special offers for new businesses or for transferring from another bank
- whether the bank offers telephone or internet banking - especially helpful if you are not located near a local branch
You should bide by the terms and conditions attached to each of your business accounts. As the business grows and circumstances change you may find these terms no longer fit your situation and you need to switch to an alternative product or service.
It is better to go to the bank to discuss how you think your account may operate. It may be necessary to negotiate new conditions for your account rather than to breach a term, eg exceed a credit limit and incur extra fees and run the risk of getting a bad credit rating.
It is important to build up a good relationship with your bank:
- don’t allow the business account to become overdrawn unless an overdraft limit has been agreed
- don’t exceed any overdraft limit without prior agreement
- stick to the terms and conditions
You can manage your bank account more easily by:
- ensuring that only appropriate persons are authorised to make payments from the bank account
- keeping records of all transactions in the bank account
- ensuring you keep and examine your bank statements
- using your bank statements to check the financial position of the business
- cross-checking your statements with your business records to ensure that all transactions tally
- Poor credit controls – failure to run credit checks on your customers is risky, especially if your debt collection strategy is inefficient. See our guides on managing late payments and getting paid on time.
- Failure to fulfil your order – if you don’t deliver on time, or to specification, you won’t get paid. Implement systems to measure production efficiency and the quantity and quality of stock you hold and produce.
- Ineffective marketing – if your sales are stagnating or falling, revisit your marketing plan. See our guides on how to create your marketing strategy and how to reach your customers effectively.
- Inefficient ordering service – make it easy for your customers to do business with you. Where possible, accept orders over the telephone, email or internet. Ensure catalogues and order forms are clear and easy to use.
- Poor management accounting – keep an eye on key accounting ratios that will alert you to an impending cashflow crisis or prevent you from taking orders you can’t handle. See our guides on how to identify potential cashflow problems and how to avoid the problems of overtrading.
- Inadequate supplier management – your suppliers may be overcharging, or taking too long to deliver. Create a supplier management system – see our guide on how to manage your suppliers.
- Poor control of gross profits or overhead costs – assess where you can cut costs. Consider outsourcing non-core activities such as payroll services. Review your utilities contracts to see whether it is possible to reduce costs by switching tariff or supplier.
Customer management
- Define a credit policy that clearly sets out your standard payment terms. See our guide on invoicing and payment terms.
- Issue invoices promptly, and regularly chase outstanding payments. Use an aged debtor list to keep track of invoices that are overdue and monitor your performance in getting paid. See our guides on managing late payment and getting paid on time.
- Consider exercising your right to charge penalty interest for late payment. Download the guide to late payment legislation from the Department for Business, Innovation & Skills (BIS) website (PDF, 390K) – Opens in a new window. You can also use our interactive tool to calculate statutory or contractual interest you may be able to charge on an unpaid debt.
- Consider offering discounts for prompt payment.
- Negotiate deposits or staged payments for large contracts. It’s in your customers’ interests that you don’t go out of business trying to meet their demands.
- Consider using a third party to buy your invoices in return for a percentage of the total. See our guide on factoring and invoice discounting: the basics.
Supplier management
Ask for extended credit terms. Giving your suppliers incentives such as large or regular orders may help, but make sure you have a market for the orders you’re placing. Alternatively, consider reducing stock levels and using just-in-time systems – see our guide on manufacturing innovation. You can also see our guides on stock control and inventory and how to manage your suppliers.
Taxation
You may be liable for several different taxes including income tax, corporation tax, VAT, business rates and stamp duty. It is important to keep good records to help you calculate your liability and complete your returns accurately. See our guide on how to set up a basic record-keeping system.
Use our interactive tool to get