Opening or changing a business bank account is rarely as simple as choosing the cheapest. Adam Bernstein explores the options and explains where best to manage your money
Opening a business bank account should be quite easy, but the banks seem to deliberately muddy the waters to make choosing harder than it really should be. Although the internet is making pricing transparent, there's still great variation in the fees levied. If banks were chosen purely on price, the least-cost option would win every time, but there are other factors at play, such as inertia, services offered, bank willingness to take on risk and convenience.
Finding a business account
While banks and accounts do differ, the British Bankers Association (BBA) has a helpful online tool (http://bba.moneyfacts.co.uk) where deals can be sorted according to "entity" - sole trader, partnership or company. Further criteria can be set to find accounts that are branch based, that offer cheques and credit or debit cards, that offer overdraft facilities, or that pay credit interest. There's even an option to compare accounts or select introductory offers.
Indeed, the BBA website shows that moving to a new bank can be very rewarding. At the time of writing, many institutions offer free banking periods (especially to start-ups) with 12 months being the norm. However, Lloyds offers 18 months and the Bank of Ireland, Barclays, NatWest and RBS offer up to 24 months. It is also possible to get other "freebies", such as Sage "Planning for Business" software (Lloyds), reduced overdraft charges for exporting firms (HSBC), and unsecured loans or overdrafts (Bank of Ireland).
Don't focus solely on charges
Interest rates shouldn't be your only consideration when it comes to choosing a bank. Instead, consider if you need an online, postal or branch service, how deposits of cash are treated, or if a small business adviser is required.
Is an overdraft or other lending important? Known quantities with a good track record fare better when opening a new account with a bank where there's an existing relationship. But not everyone wants one institution to have oversight over their business and personal accounts.
Security is very important, but protocols can become a real irritant. HSBC insists on a keyfob device that generates a unique number at login - no fob, no entry - while NatWest uses memorable passwords for logins and transactions to existing payees, but requires a calculator-style device to interact with a debit card for all new payees.
Online banking can reduce fees while allowing you to keep a real-time watch on accounts. Also, many banks offer smartphone apps as a convenient method of getting online to view or make payments. But again, they all work differently. HSBC requires a fob login similar to a desktop, NatWest goes through a one-off process to recognise the mobile phone (SIM) and associate a numerical password, but thereafter requires only the password.
Going online means having good anti-virus and firewall protection. Some of the banks offer software free of charge - one example being Rapport, which effectively creates a private, secured connection between your computer and the bank.
You may benefit from being able to download statement data that can be imported into an accounts package to speed up statement reconciliation. Cross-checking this against the software you use for compatibility would be worthwhile.
Those chasing the best rates will always find that online (deposit or current) accounts will be the best option. Providers try to draw in volume and they have the benefit of having lower costs, higher profits, which in the short term they hand back through higher interest rates. But online can be impersonal.
Call centres can irritate, especially if overseas. If this bothers you, choose a bank with access to a business manager with a local telephone number. NatWest uses only UK call centres, as do Santander, the Co-operative and Bank of Scotland.
It pays to switch and split
Loyalty isn't always rewarded and for most it pays to split the institutions used for personal and business banking, credit cards, insurance or (commercial) mortgage. Using comparison sites can help create a mix of financial products according to need and the best deals available at the time. The best known are:
But the proof of the pudding is in the eating, so consider asking colleagues what and whom they use.
Switching banks isn't hard. While there may be some disruption, since November 2009 banks have had to follow the Banking Conduct of Business Sourcebook rules. The rules mean, among other things, direct debits and standing orders should move from one institution to another and be working within seven business days.
Opening a business bank account is easy, but documentation will be needed - including detail on the business, its activity, where start-up finance has come from, a business plan, bank statements and, for companies, a certificate of incorporation. Also needed from those involved in the business (owner, director or company secretary) are proofs of identity (passport, driving licence) and proofs of address with a list of those able to sign on the bank account together with their signatures.
How to lower banking charges
Banks make a lot when they aren't lending badly. Barclays may have seen profits drop 3% in 2011, but it still made £5.9b, and HSBC grew profits 15% to £14b, so you shouldn't worry about the banks.
By way of example, at the time of writing, you can pay anything from nothing for most day-to day-transactions (RBS business banking direct) to £1 per cheque and 50p per electronic transaction (Weatherbys Bank business current account). In terms of charges, negotiation is key, but automating as many transactions as possible, avoiding unauthorised overdrafts, minimising the cash banked or withdrawn, can make further savings.
Bank interest and fees should be documented and not levied arbitrarily. Banks are expected to publish their transaction charges with customers being told of the charging period (to cross-check against any free allowance of free items per period). Another part of the BBA website details how to check on interest charges that may have been racked up (http://bit.ly/IAG0dI)..)
One tip that is often missed is to not only read the terms and conditions carefully, but also to diarise when special rates end and to (possibly) start looking elsewhere in good time.
How to deal with problems
With the best will in the world, problems do arise. The test, of course, is how problems are fixed. Even so, those in dispute may find an impasse where third-party help is needed, and that's where the Financial Ombudsman Service (FOS) steps in.
A free service, the FOS is able to hear complaints from "micro-enterprises" that have less than 10 employees and a turnover of less than â¬2m (£1.6m). If a case is proven, the FOS can award up to £100,000, or £150,000 if the complaint was made after 1 January 2012.
During 2010-11, the FOS received 3,093 cases from small business customers, of which 71% concerned banking (especially bank charges), 25% insurance (commercial vehicles, property and business protection insurance) and 4% investments. Sole traders and those running small businesses often register disputes as personal rather than trade.
There are time limits for claims to be brought, which are generally six months from a rejection by the institution of the complaint, and six years from the event that is being complained about (three years from when the complainant knew or should have known about the cause being complained about).
You can contact the FOS by phone, eâ'mail or web. See www.financial-ombudsman.org.uk.
Business banking tips
â- Don't be tempted to use a personal account for the business. It'll make separating personal from business monies difficult. The banks don't like it and nor does HMRC. Using a personal credit card to fund a business can also make an individual liable for business debts should the business fail.
â- Use the British Bankers Association (BBA) online tool to search for a new bank and do use the account comparison feature. But don't let price be the sole determinant of the bank you choose. After all, you could get what you pay for.
â- Consider your needs for elements such as cash handling, opening hours and the online banking proposition. It's no good having a bank arrangement with no (or low) fees if the bank is closed when you need to visit. Similarly, if you are a business that wants or needs a personal relationship with a manager, then online banking is not for you.
â- The banks often tote themselves as having small business advisers. However, you need to understand that the advisers are employees of the bank, may not be impartial and could also be short on experience. Independent advice from local organisations with no vested interest in their recommendations to you might be better. Check out the Government's Business Link website (www.businesslink.gov.uk), it may help you find an adviser to suit your needs.
â- Security is a real issue, as is corporate identity theft. Never navigate to a bank's website from a search engine. Always key the address in manually and look at the menu bar (once you've logged in) for "https". This indicates that the website is encrypted and secure.
â- Ringing a bank call centre can be expensive. Use www.saynoto0870.com to find a geographic phone number as an alternative to calling a chargeable number beginning with 0870, 0845 and 0844, and so on.