Chequeing in: how to choose a business bank account

By Jake Martin

3 min read

Switching business bank accounts can be a painful process, so it’s important to get it right at the start. But what do you need to consider when selecting the best account for your small business? Here’s how to manage the process from making appointments, to knowing the right questions to ask.

It’s a little-known fact that in Britain, we’re much more likely to get divorced than we are to change banks[1]. This level of apathy means banks tend to hold onto customers (even customers who aren’t happy with their service) for an average of 17 years. And that figure increases to 19 years if you’re Scottish[2]. But just like divorce can be bad for your personal finances, so too can choosing the wrong bank account be bad for your small business finances – especially if it doesn’t meet your needs.

Introductory offers

One key thing to keep an eye out for is an introductory offer that seems enticing but changes six months or a year – or even two years – later. These introductory terms are specifically designed to get you on board. Some banks, for example, may offer an initial ‘free’ banking service but it’s important to check the small print to see when it changes – which it will invariably do.

Even after this introductory period, some changes will be more visible than others. A monthly fee, for example, is easier to spot than a fee system that charges you every time you pay cheques in – a cost that some accounts still feature.

Different types of charges

You’ll need to be aware of how differences between so-called standing charges and transaction charges affect you. For example, if your small business will be making lots of physical transactions by cash or cheque, an account with a standing charge but no transaction fees is likely to be a better option. Those that make all of their payments electronically, on the other hand, may find accounts with transaction charges but no standing charges work out cheaper.

Significant differences can exist between banks when it comes to some of the main costs they impose – chief of which are overdraft charges, which can add up if your cash flow doesn’t always leave you in the black. But assess the whole picture – what you might lose in one area, you could gain in another. For example, preferential rates for business loans if you’re a pre-existing (or new) customer.

Businesses with lots of international customers will also need to think about how their bank charges them for receiving payments from overseas. Charges tend to be similar, but charges for extra assistance will vary.

Understand your needs

Often, the choice of bank is dictated by something as simple as proximity and ease of access. But that frequently doesn’t take into account what your business actually needs. Before settling on an account, small business owners should undertake an audit of what they intend to use their bank for (whether, for example, you have to be there in person, or can do most of your transactions online). You’d be surprised how much of your banking can be done virtually with the right account.

The best advice is always to make an appointment to see not just one, but two or three banks (and their managers) face to face. Don’t feel embarrassed about grilling them on all of the above points – and more. Chemistry can be a highly undervalued quality when it comes to banking, but if a prospective bank can’t give you the assurances you need, or behaves in a way that makes you think they’re hiding information, it’s best to trust your gut.

Fortunately, there is plenty of external advice to help you through the process. Both the British Bankers’ Association and Money Facts provide up-to-date comparisons of UK business bank accounts. With careful preparation and this kind of information available, talking to the banks about your financial requirements needn’t be an uphill struggle. And, ultimately, you should end up with a small business bank account that really will be the perfect long-term match.

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[1] Independent newspaper, 2015

[2] Payments Council research 2013

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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