Documents Required For Opening A Business Bank Account – Small business owners need to know the purpose of each operator, their key features, and how the opening affects their business.
In short, if you want to collect credit card, debit card, and other online payments from customers, you need to open both accounts.
Documents Required For Opening A Business Bank Account
By reading this article, you will get a basic understanding of the basics of both accounts. You will also know how they are different, and how they can help your small business.
Steps To Opening A Business Bank Account
A merchant account is a type of business bank account that allows businesses to accept credit and debit card payments, as well as pay online.
Online businesses collect information about these cashless payment methods through payment gateways, such as the ones below:
When customers insert their card or enter their card information in the payment gateway on the company’s website or app, the information is sent to the merchant bank – the bank that issues your merchant account.
The bank then facilitates the communication between the various parties involved in the cashless payment and ensures that the money is transferred correctly from the customer’s account to yours.
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First, the acquiring bank sends the transaction information to the card issuing customer, also known as the card issuer, who checks if they have enough money to make the payment.
The card issuer approves or declines the transaction, and then sends a response, in the form of data, to the electronic terminal where the customer made the payment.
If the provider approves the transaction, the payment will be processed and transferred to your merchant account, where it will be processed for an average of 24-48 hours before being transferred to your business account and available for use.
This all happens in seconds and results in a different payment to the merchant account holder that varies depending on their provider.
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These fees usually run from 1.75% to 3% of every dollar of the transaction, plus 20 to 30 cents per transaction.
For example, popular merchant account provider Square has a flat rate fee of 2.6% + 10 cents for contactless payments, chip cards (swiped or embedded), and convertible magstripe cards.
Another reason is that the bank cannot make money from lending you a card terminal.
A business bank account allows business transactions and is a legal requirement for all businesses except sole proprietorships.
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This is where funds from the merchant account end up, as well as cash and check deposits from your customers.
The money in a business bank account is often used for routine business expenses, such as monthly utility bills, software subscriptions, or down payments.
However, there are some important business bank accounts that you should know before opening one.
First, many banks charge a monthly or annual maintenance fee to keep your account open. The amount of this fee depends on the bank.
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Bank of America rewards its customers for maintaining high standards, but many banks may take a different approach, hitting you with fees for going lower than their standard.
Some banks will limit the number of free transactions you can process over a certain period of time – usually around 200 per month.
Generally, the more money you have in the account, the more sales you can make. Banks often reward customers for trusting them with more money.
Finally, business bank accounts often come with reporting tools to help you with taxes, cash flow, and fundraising.
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Businesses use a merchant account and business account together to process and collect credit card, debit card, and online payments from customers.
In terms of accepting card payments, the main difference between a merchant account and a business account is that credit card payments made to a merchant account are faster than those made to a business bank account.
When a bank’s business accepts a card payment, the bank collects and the issuer delays the payment until they both approve the transaction.
The merchant’s account, on the other hand, avoids this delay, bringing money to the merchant even though online transactions may be pending.
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They check the seller through the application process, but the business bank account just fills out a few forms.
Another important difference is that business bank accounts allow money to be directly withdrawn and deposited into the account. This is not possible in a merchant account.
Therefore, business bank accounts are mainly used to track and pay day-to-day business expenses, such as office rent, payroll, or advertising:
After a credit card purchase from a customer is approved, the money will be deposited into your merchant account.
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From there, you can transfer money into your business bank account, where you can use it to make purchases, pay bills, and run your business.
Merchant accounts are needed for businesses that want to accept credit, banking, and other online payments from their customers, without waiting days for the acquiring and issuing bank to approve each transaction.
Allowing customers to pay through cashless and online methods is becoming increasingly important in this economy, so many businesses are opening merchant accounts.
If you are an online business, a merchant account is very important, since collecting money is not a viable option.
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Instead, with a merchant account, businesses can set up online payment gateways where customers can make cashless purchases online without any interaction with an employee, from their laptop or phone.
Corporate businesses also need merchant accounts. Businesses don’t always just receive money. Consumers are often confused when they meet someone who says no to a loan or loan.
Even mobile businesses like taco trucks are accepting credit and debit cards these days. They only use the portable card terminals provided by their merchant account provider.
However, be aware that you will also need to set up a business bank account before applying for a merchant account.
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Merchant account providers require businesses to deposit their money from the merchant account into a merchant bank account, rather than into a checking account or something else.
You can accept payments in different currencies, facilitate cash flow, and demonstrate the authenticity of your business, thus building authority in your niche.
As each generation moves into cashless payments, it’s important to set up your business with a merchant account to easily process credit cards, debit cards and other online payment methods.
If you want to open a merchant account to receive cashless money, you must have a business bank account.
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Even if you don’t want to offer cards as a form of payment, your business is required by law to have a business bank account, unless you are a sole proprietor.
If you run a partnership, Limited Liability Partnership (LLP), or Limited Liability Company (LLC), a business bank account is the way to go.
Even sole proprietors should consider opening business bank accounts, as they provide some level of legal protection from lawsuits.
Only the money in the bank account is at risk of being seized. This is one of the many reasons to keep your business expenses separate:
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Another benefit of having a business bank account is that it makes your company look professional and trustworthy to customers.
When you can accept credit and debit cards, customers trust that you are up to date.
Using a business bank account also makes tax preparation easier to handle. Most businesses pay individual business taxes.
Having all of your expenses and income in one place online makes calculating the quarterly tax payment easier.
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On the other hand, if a sole proprietor is using a personal bank account as a customer depository, it may be difficult to tell which money came from business sales and which came from Venmo from a friend or somewhere separate from the business.
It is also important to note that if your business is selected for audit and you do not maintain a business bank account, the auditor can look through your account.
Another benefit that is not considered enough is how opening a business bank account lays the foundation for a good relationship with the bank, which can help you get business loans and other ways to pay down the line.
Getting through these sometimes difficult financial situations is a better experience with a bank you trust and enjoy working with.
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This part should take a lot of time, because it is the most important thing to do well, to choose the best bank for your business needs.
It is important, therefore, that you set up your business to accept these methods without money from your customers. They will truly appreciate it.
Both are important to receive these payments, as well as other methods that do not connect online, without suffering any delays. A company can open a current account or more in any bank and must do business. In this section, we will look at how to open a private limited company bank or current account along with the required documents.