Required Documents To Open A Business Bank Account – Small business owners need to know what purposes each serves, their main characteristics, and how their opening will impact their business.
In short, if you want to accept credit card, debit card, and other online payments from customers, you need to open both types of accounts.
Required Documents To Open A Business Bank Account
By reading this article, you will have a basic understanding of the basics of the two accounts. You’ll also find out how they differ, and how they can benefit your small business.
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A merchant account is a type of merchant bank account that allows merchants to accept credit and debit card payments, as well as online payments.
Online businesses collect information for cashless payment methods through payment gateways, as below:
When a customer inserts their card or enters card information into a payment gateway on the company’s website or app, that information is sent to the merchant bank – the bank that provided your merchant account.
This bank facilitates communication between the various parties involved in processing cashless payments and ensures the proper transfer of money from the customer’s account to your account.
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First, the receiving bank sends the transaction information to the customer’s card issuer, also known as the card provider, who checks whether they have enough cash to pay the bill.
The card issuer approves or rejects the transaction, and then sends their response, in data format, back to the electronic terminal where the customer pays.
If the issuer approves the transaction, the payment is processed and transferred to your merchant account, where it will be held for an average of 24-48 hours before arriving in your merchant’s bank account and available for use.
All of this happens within a second and incurs various fees for merchant account holders that vary depending on the provider.
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These fees are usually from 1.75% to 3% of each dollar amount, plus 20 to 30 cents per transaction.
For example, merchant account provider Square has a flat rate of 2.6% + 10 cents for contactless payments, credit cards (either purchased or loaded), and purchased magstripe cards.
Another reason is that the bank is no longer willing to make money for you by renting you a card terminal.
Commercial bank accounts allow for business transactions and are a legal requirement for all businesses except sole proprietors.
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That’s where the funds from the merchant account end up, as well as cash deposits and checks from your customers.
Funds in a business bank account are often used for routine business expenses, such as monthly utility bills, software subscriptions, or payroll processing fees.
However, there are some unique characteristics of a business bank account that you should be aware of before opening one.
First, most 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 balances, but many banks may charge different fees, hitting you with fees below their minimum balance.
Some banks will limit the number of free transactions that can be processed over a certain period of time—usually around 200 per month.
Usually, the more funds you have in your account, the more transactions you can make. Banks tend to reward customers for bringing them big bucks.
Finally, business bank accounts also often come with useful reporting tools that will help you with taxes, cash flow management, and expense tracking.
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Businesses use merchant accounts and joint business accounts to process and accept credit card, debit card, and online payments from customers.
When it comes to accepting card payments, the main difference between a merchant account and a business account is that credit card payments made to a merchant account will be processed more quickly than those made to a business bank account.
When a merchant’s bank account accepts a card payment, the receiving and issuing banks will hold the payment until they both approve the transaction.
Merchant accounts, on the other hand, bypass these delays, remaining ahead of currency traders even though online transactions may still be delayed.
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They verify merchants through an application process, while a business bank account requires them to fill out several forms.
Another major difference is that commercial bank accounts allow funds to be withdrawn directly and deposited into the account. This is not possible on a merchant account.
Because of this, business bank accounts are primarily used to track and pay day-to-day business expenses, such as office rent, payroll, or advertising:
Once a customer’s credit card purchase is approved, the money will go to your merchant account.
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From there, you can transfer funds to your business bank account, which you can then use to make purchases, pay bills, and run your business.
Merchant accounts are essential for businesses that want to accept credit, debit, and other online payments from their customers, without having to wait days for the receiving and issuing banks to authorize each unit.
Allowing customers to pay via cashless and online methods is becoming increasingly important in this economy, resulting in more and more businesses opening merchant accounts.
If it is an online business, a merchant account is very important, because getting paid is not the right choice.
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Instead, with a merchant account, businesses can set up online payment gateways where customers can make cashless online purchases without even interacting with a member of staff, right from their laptop or mobile phone.
A physical business also requires a merchant account. Rarely does a business just need money. Customers are often confused when they come across one that says there is no credit or debit.
Even mobile businesses like taco trucks accept credit and debit cards these days. They simply use the transfer card terminal provided by their merchant account provider.
Therefore, be aware that you still need to set up a business bank account before applying for a merchant account.
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The beneficiary bank (merchant account provider) requires businesses to deposit their money from the merchant account into the merchant’s bank account, not into a personal checking account or something else.
You can accept payments in multiple currencies, improve cash flow, and demonstrate the legitimacy of your business, so writing is your niche.
As each generation moves to cashless payments, it’s important to set up your business with a merchant account to facilitate credit cards, debit cards, and other online payment methods.
If you want to open a merchant account to receive cashless payments, you must have a merchant bank account.
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Even if you don’t want to offer cards as a payment option, your business may be required by law to have a business bank account, unless you’re a sole proprietor.
If you run a company, Limited Partnership (LLP), or Limited Liability Company (LLC), a business bank account is the way to go.
Even sole proprietors should consider opening a business bank account, as it provides an added level of legal protection from lawsuits.
Only funds in bank accounts are at risk of confiscation. This is one of many reasons to separate your business expenses:
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Another benefit of having a business bank account is that it makes your company appear more professional and trustworthy to customers.
When you can accept both credit and debit cards, shoppers trust that you’re on board with new trends.
Using a business bank account also makes it easier to manage tax preparation. Many businesses pay quarterly business taxes.
Having all your expenses and income in one place online makes it easy to calculate these quarterly tax payments.
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On the other hand, if a sole proprietor uses a personal bank account as a place to store customer payments, it can be hard to tell which revenue comes from selling the business and which comes from Venmo from friends. business.
It’s also important to note that if you choose your business to audit and you don’t have a business bank account, the auditor may be able to look through your personal account.
Another benefit you may not be aware of is how opening a business bank account lays the foundation for a good relationship with the bank, which can help you obtain business loans and other forms of online financing.
It is a great experience to navigate sometimes tricky financial situations with a bank you trust and enjoy working with.
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The part that should take the longest, because it’s the most important thing to do right, is choosing the best bank for your specific business needs.
Therefore, it is important that you prepare your business to accept these unprofessional methods from your customers. They will definitely appreciate it.
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