If you run a start-up or a small to medium enterprise (SME), opening a business current account is key. These work in exactly the same way as a personal bank account, but offer an effective method of keeping your business and personal affairs separate, simplifying administration and making it easier to manage cash flow.
Like a standard bank account, a business account holder can withdraw money without notice and make day-to-day banking transactions, such as paying money in, withdrawing cash from an ATM with a debit card, paying bills by check and setting up standing orders and direct debits to cover recurring costs.
Business accounts on offer range from a basic account with a debit card and check book to an account with a host of business advantages such as a relationship manager, overdraft facilities and lifestyle privileges – or even an international trading account to help manage your import and export needs.
What to look for in an SME current account
The first factor to consider is what you want from the account. For a start-up, a basic account that can track cash flow may be enough.
For a more established SME, added extras that come with the account, such as free account transactions, free internet banking, overdraft facilities and interest on in-credit balances may be important because they aid the company’s cash flow.
[ Compare SME accounts | Compare SME credit cards | Compare SME business finance | Compare SME equipment finance ]
Features to look for:
- Minimum monthly balance to be maintained: How much access an SME has to these features can depend on the minimum monthly balance the company can maintain in the account over the course of a month. This amount can vary depending on the service provider and the type of account you choose. However, as a general rule of thumb, the higher the minimum monthly balance, the more perks the bank will offer the business owner in return.
- Multiple currencies: For those making regular international transactions, you may want to find an account with multi-currency flexibility.
- Relationship manager: And, for the more demanding founder or CEO, with more intricate financial needs, a dedicated personal relationship manager may be vital to the smooth running of the enterprise’s financial affairs.
- Credit card or privileges: Also, ask what cards does the account come with? While a debit card may be standard, access to an SME credit card will help the business negotiate better discounts from suppliers as you would then not need a credit period from a supplier. And are there any lifestyle benefits with the account or debit card such as travel insurance, airport lounge access, discounts at restaurants and so on?
- Trade and remittance rates: If you are trading internationally as well as locally, look for an account that offers both trade and transactional solutions. This is important, as a good trade account will offer preferential trade and remittance rates to help ward against international transfers and Forex conversion fees.
- Import-export products: It should also offer access to import and export related products to meet your foreign trade needs. These includes the issuance of letters of guarantee when you are participating in a bid, acting as a third party document handling entity for collections and issuing Letters of Credit to facilitate the payment and shipment of goods.
Whatever account a business signs up for, it is wise to research the bank’s other personal finance products that are tailored to SMEs. If you’re going through a growth phase, for example, or anticipate a future expansion, opening a current account with a bank that offers business loans with preferential interest rates is a sensible move.
[ Related: A guide to credit cards for SMEs | A guide to SME loans | Guide to SME Islamic Finance ]
What to be wary of
- Fees: Current accounts can come with a whole host of fees, whether monthly management charges or fees for issuing new check books, making transfers or paying wages. These can quickly add up, so look for accounts that have low fees on the transactions you will make the most. Can the bank help with paying wages, for example? Otherwise it’s an AED 25 fee per employee every month. Similarly, trade accounts come with a host of fees, from document-handling charges to administrative fees and issuance commission, so find the account that works best for your needs.
- Not planning ahead: It can a mistake to choose a bank with the lowest fees without considering the future; it can be hard to switch banks at a later stage if you find a financial institution offering better loan rates, that also demands you transfer your salary to that bank. SME owners in the e-commerce sector also need to consider whether the bank can act as the merchant when the business is fully operational.
- Overdraft dangers: While a business account can come with an overdraft facility, such facilities often come with steep fees. These fees are even higher if you are unauthorized by your bank when you go into the red and beyond the balance or overdraft limit.
- Ease of making transactions: Online banking is not necessarily free for business customers and international transactions can be costly. There may be a limited number of free international remittances to clients/customers based abroad, for example, something that could affect your ability to run the business efficiently.
- Minimum monthly expectations: For any SME, cash flow can be an issue. This could affect your ability to meet your average minimum monthly balance. Failure to stick to the agreed rate will incur charges. Similarly a trade and transactional account will demand minimum monthly trade throughput volumes so failure to meet those will also incur fees.
Having started up an SME myself with my business partner at the start of this year, I would like to add to this article that our experience has been quite a frustrating one. Poor communication and lack of transparency have been following us since the inception of our business. We opened an account with RAK Bank, as this was one of the banks suggested by our free zone support team. Here’s some of the issues we encountered:
– though we made it clear from the start that online payments and a merchant ID were a must have for our company, we were only informed upon signing of the official docs (a couple of weeks after our first talks) that RAK Bank could not offer this (“why” was never clearly explained). So, we had to revert to a second bank (more on that later)
– our relation manager clearly did not like us asking a lot of questions, so at a certain moment the only replies we received from her that she was not our relation manager (anymore?). Now, after more than 6 months following the opening of the account, we have an new relations manager (the contact details of whom we stumbled into by sheer luck, as nothing was communicated by the bank)
– transferring funds between our different currency accounts proved to be a major challenge and the rate/costs applied was ridiculous enough to make us go for cash withdrawals and the intermediate support of exchange bureaus each time we were looking at a substantial transfer
– having single authorisation on the account (with one business partner being abroad) proved another challenge: a lot of paperwork, revising the company’s articles of incorporation, copies of board resolutions, copies of copies of copies of our identity papers (though all of them had been submitted at the opening of the account)…sometimes we had the impression creating a bureaucratic paper load was the bank’s core business
As mentioned, we reverted to a second bank, NBAD, to get our merchant ID sorted (required to do online business). That was three months ago. Having submitted paper, upon paper, upon copy of those papers and having sent weekly reminders (either to check the progress or to make sure that no more docs were required), we still have not received the liberating “yes”. The event for which we require the merchant ID has gone live, but we cannot collect online payments yet…Shwe shwe?
Summarised: don’t believe half of what the commercial videos in your bank’s branch promises you re: high-end customer service, smooth account management, smart banking,…and get yourself a good pair of shoes, because you are likely to do a lot of walking between branches to get things sorted.
Erik, thanks for your comment – I’m sure other readers will learn a lot from your experience.