How to choose and manage a business bank account

A good relationship with your bank is essential to the success of your business. You need to spend time choosing the right bank and the right account and manage it effectively.

The services offered by banks differ greatly and so do the fees they charge. Some banks have special business account teams and can offer special deals to new businesses, or useful start-up information.

Banks offer a range of competitive business account packages allowing you to negotiate or switch for a better deal.

All retail deposit-takers in the UK – including those authorised in another European Economic Area state – must comply with the Financial Services Authority’s (FSA) Banking Conduct Regime. The regime comprises the Principles for Businesses, Payment Services Regulations and a Banking Conduct of Business Sourcebook (BCOBS). BCOBS sets conduct of business requirements relating to consumers’ everyday interaction with banks and building societies.

This guide explains how to choose and manage your business bank account.

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Choosing a business bank account

The type of account/s you choose will depend on your business’ needs. For example, if you make frequent transactions, a fixed-fee account may be more cost effective than one that charges per transaction. Some accounts also allow free direct debits or standing orders.

Depending on your business, you may require:

• a business current account for daily transactions, payments and receipts – eg one that pays interest on credit balances (though not all banks offer this)
• an instant access deposit account for cash sums not needed for daily operations but can be accessed as required
• a term deposit account for funds not needed immediately or at short notice
• a foreign currency account if you trade overseas and if you receive and make payments in foreign currency
• a loan account for any loans you take out
• a merchant account to accept and process debit and credit card transactions – see our guides on using payment cards to buy and sell goods or services and accepting online payments.

Before choosing a business account, you should compare the different services and costs. For example:

• facilities – eg automatic money transfers, debit and credit cards or telephone or internet banking
• interest rates – particularly if you’re usually in credit
• overdraft charges – particularly if you’re often overdrawn
• monthly fees
• additional account charges – eg for statements, cheques and cash payments
• additional services – eg small-business advice

Compare business bank accounts on the British Bankers’ Association (BBA) website- Opens in a new window.

Improving your current deal

You should review your bank accounts at least once a year and compare them with others available.

If you compare your current bank’s service with others on the market you will know how competitive your deal is, or if there are better options. But you don’t have to switch banks to improve your deal, you could instead see if you can agree better terms with your existing bank. If you have a history as a good customer, your bank may be willing to negotiate with you.

You should meet with your bank to explain how your current deal could be improved, highlighting some better deals offered by other banks. You could ask them to amend the terms of your account – eg changing specific charges or interest rates on a loan or overdraft – before you take your business elsewhere.

If successful, you could improve the terms of your account and avoid the disruption of switching banks.

If you do decide to transfer your bank account, you should aim to make your business as appealing as possible to a new provider. For more information, see the page on what banks look for in a business in our guide on obtaining bank finance.

Using more than one bank

You could also consider using different banks to fulfil different financial requirements. This allows you to pick and choose the most beneficial parts of various deals – eg a bank offering competitive interest rates on current account balances may not offer attractive loan rates. It also lets you build links with several different banks or financial providers, making it easier to switch accounts in the future.

However, it may also be more complicated and time consuming to keep track of your financial affairs and to build a relationship with each bank. A bank may also offer better terms if you commit all your business to it.

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Open a business bank account

Once you have decided which bank to use and which type of account you need, you may need to set up a meeting with the bank to open the account. Alternatively the bank may allow you to open a business bank account online. In each case, the bank will require certain information from you to open a business account, including:

• details of your business and business activities.
• where the start-up finance for the business has come from – eg from you, other investors or from a
• a business plan – see our guides on how to prepare a business plan and how to use your business plan to get funding
• information on your credit history
• bank statements for the business if you already have a business account
• if you are a limited company – a certificate of incorporation

You will also have to provide the following information and documents:

• A driving licence, passport or other acceptable form of ID.
• Proof of address, such as a recent utility bill for you and for any other person involved in the management of the business. If you are a limited company, this information will have to be provided for any directors and company secretaries so that the bank can check your identity as required under money laundering laws.
• An account opening mandate. The bank will give you this.
• A list of the persons who can sign on the bank account and a sample of their signature. The bank will ask you to specify in what combination people will sign on the account. For example, cheques may require two signatures.

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Manage a business account

As your business grows and changes, you may find that the terms and conditions attached to your business bank account are no longer best for your business. It is important to regularly review the situation so that if this is the case, you can switch to a different account or negotiate to change the terms and conditions of your current account.

It is important to build up a good relationship with your bank. You should always try to keep to the terms and conditions attached to each of your business accounts, so it is better to change the conditions of your account rather than breach an agreed term – eg exceeding a credit limit, which would incur extra fees and could give you a bad credit rating.

You should be especially careful not to allow the business account to become overdrawn – unless an overdraft limit has been agreed – or to exceed any overdraft limit without prior agreement.

Your relationship with your bank will also be improved if they understand your business. You can help them to improve their understanding by:

• talking to the person managing your account on a regular basis
• sending your accounts to the bank every year, if requested
• providing the bank with updated copies of your business plan when you need new loans or increased overdraft facilities – see our guide on how to use your business plan to get funding
• letting your bank know if you plan any unusual transactions – eg significant capital expenditure

You should always notify the bank immediately of any problems your business may be experiencing.

If you are unhappy with any aspect of the service you have received from your bank, in the first instance complain to your bank. If you remain unhappy, you can find details about complaining or resolving a dispute with your bank on the Financial Ombudsman website – Opens in a new window. However, please note that the ombudsman is only able to assist small businesses with an annual turnover of less than €2 million and fewer than ten employees.

Beyond maintaining a good relationship with your bank, you can also manage your bank account more easily by:

• ensuring only appropriate persons are authorised to make payments from the bank account
• keeping records of all transactions in the bank account
• keeping and checking through 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 are correct

Online banking can make it quick and easy to check balances and payments. See the page in this guide on online banking.

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How to switch banks

Changing the bank your business uses can be time-consuming and disruptive.

However, subscribers to the Banking Conduct of Business Sourcebook (BCOBS) – which replaced the Business Banking Code on 1 November 2009 – have committed to making the transfer of bank accounts quicker and simpler for customers. Find BCOBS on the Financial Services Authority (FSA) website- Opens in a new window and read industry guidance about BCOBS on the British Bankers’ Association (BBA) website- Opens in a new window.

Under BCOBS, your old bank must send your direct debit and standing order details to you and your new bank within three days of any request. Your new bank must then set up these payments and inform the recipients of your direct debits within four working days.

If you are changing banks, you can ensure the process runs smoothly by:

• Contacting your new bank and obtaining application forms in advance. Check the terms and conditions of your new account carefully and discuss any concerns before returning the forms.
• Having business information ready for your new bank – eg who will have access to the account.
• Completing the mandate from your new bank to allow them to deal with your old bank on your behalf and request details of regular payments.
• Checking whether the bank will notify those who make payments to you, or whether you need to. The new bank will arrange for these payments to be switched.
• Monitoring both accounts carefully to check for irregularities – eg payments being made twice.
• If possible, keeping your old account open until you’re sure the new bank can deliver the required service.
• Checking BCOBS for information on standards that apply to banks when transferring accounts.

The new bank will notify you once they have completed their responsibilities for the transfer.

If you are unhappy with the service you have received from your bank, you should first complain to them. If you remain unhappy with the service, you can complain to the Financial Ombudsman.

Find out about complaining or resolving a dispute with your bank on the Financial Ombudsman website- Opens in a new window.

Note that the ombudsman is only able to assist small businesses with an annual turnover of less than €2 million and fewer than ten employees.

There are several ways you might benefit from switching business bank accounts:

• a new account could offer more attractive interest rates or lower charges
• a new bank might understand your requirements better than your current bank
• many bank accounts come with introductory offers – eg free banking for an initial period
• your current bank may not offer 24-hour telephone or internet banking services – making payments and transferring funds electronically may help reduce bank charges

However, switching bank accounts can also have a number of disadvantages:

• if you have security or your accounts are complex, it can still take time and there’s no guarantee of avoiding problems altogether
• using one bank for several years can demonstrate financial stability, which can be important for applying for a loan or other sources of finance
• you will lose the benefits of the relationship you have with your current bank
• you may need to assess the possible impact of switching on other arrangements you might have with the bank – eg loans or credit cards

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Online banking

All major banks offer online banking, and most businesses can benefit from using it. Online banking allows you to:

• check your balances and view statements online
• move money between accounts
• make payments to suppliers
• set up regular payments such as salaries
• order chequebooks and statements
• download account information to analyse on your computer

Online banking allows you to manage your business bank account more efficiently, but it can also be very cost effective. Charges are often lower than for ordinary accounts and accounts may offer higher interest rates. Banks usually offer online banking services at no extra cost.

Larger businesses may also be offered ‘PC banking’ – this requires installing special banking software on your computer to manage your account. It allows you to directly link your accounting systems to your bank and can offer a more effective solution if you have a large volume of banking transactions.

Find information on safe online banking on the Bank Safe Online website- Opens in a new window.

Switching to online banking

Before you go ahead and switch to online banking for your business, make sure you:

• Identify your objectives – eg you might simply want to reduce costs, or online banking may be part of an integrated IT system for handling accounting and payments.
• Check what services your bank offers and whether they meet your needs.
• Investigate what services other banks offer.
• Find out about transaction charges, interest rates and any standing charges.
• Estimate how your banking costs will change with online banking.
• Talk to your suppliers and customers about the kind of electronic payment options they would like.
• Assess whether you would need any additional equipment and whether any specialist set-up is required.
• Estimate the costs and timescales of switching.
• Identify which employees will be affected by the change and organise suitable training in the new system or procedures.
• Ensure that you have proper security – ie anti-virus software, firewalls and password protection – and ensure you include security measures as part of your staff training.
• Plan the introduction and testing of online banking.

If you are introducing online banking as part of a more complex IT program, you may want advice.

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Bank charges

Banks will provide you with information about their charges, but make sure you understand this information and are aware of the terms and conditions. Brochures and leaflets will highlight the standard charges and you will be advised of some of the non-standard fees before the service is provided.

Checking bank charges

Bank charges are usually taken monthly or quarterly. A statement detailing a breakdown of all fees is sent to the customer before the fees are taken. You should check this statement regularly to ensure that no other fees are being imposed. Ask the bank to explain anything that looks unusual or that you don’t understand. 

Find information on understanding and checking bank charges and interest on the British Bankers’ Association (BBA) website- Opens in a new window.

If you do not keep to the terms and conditions of your account, the charges can be high. For example, banks may charge a referral fee if your account goes overdrawn without permission and if you accept a cheque that is returned unpaid by the debtor’s bank, your bank could charge you an administration cost and you will not get the money due to you.

Keep bank charges to a minimum

There are ways to keep your bank charges as low as possible. These may include:

• Negotiate for better interest rates and lower charges.
• Automate as many transactions as you can by using standing orders, direct debits and electronic payments.
• Use your bank’s online services if any are available.
• Avoid unauthorised overdrafts.
• Minimise the amount of cash you pay into your account and the cheques you write out.
• Open a foreign currency account to make and receive foreign currency payments. You will avoid making exchange fees on each transaction and it allows you to hedge against foreign currency exchange rate fluctuations. However, you should check set up and transaction charges carefully.
• Find out what other banks would charge for the same services.

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