Which bank account should you open for your business?

In our previous post, we talked about how you can start accepting digital payment with WibmoPay payments solutions to increase productivity and profitability of your business, now that you have started collecting payments you may need a bank account to keep the funds. And to help you, here’s our guide to the right business account.

But first, let’s talk about why do you need a separate business account and avoid using your personal savings account:

1. Clean and Accurate Accounting

A business account is for all the business transactions, hence a clear snapshot of your finances. Easier to manage cash flow, giving you a direct view in terms of profit or loss.

2. Maximize tax deductions

Having clear information and understanding about your business expenses will help you in managing your taxes when the time comes for filing ITRs (Income Tax Returns).

3. More professional

A business account increases credibility and shows you’re serious about your work. Your supplier or customers can identify the payments coming from a real on-going business.

4. Link to other accounts

You can link other accounts like a business credit card to manage all your transactions and expenses.

5. You may have to get finance

Everybody needs some credit/financial help to boost their business at some point of time, having a separate business account will help in availing overdraft facilities offered by the banks or to get a short term loan.

A dedicated account will help you in keeping your books clean and will give you a clear picture of company-wide expenses.

Now you know why a dedicated bank account is required for your business, let’s talk about the various types of accounts offered by banks in India and the one that you can use for your business.

We have three types of bank accounts for businesses operating in India:

1. Current Account
2. Nodal Account
3. Escrow Account

Current Account

This is the most common business account offered by Indian Banks, it can be availed by anyone who is accepting money in exchange of services or products. It is a zero interest account and has no limit on the number of transactions that can be carried out in a day. Other offerings include both online and offline/cash transactions, free inward remittances, multi-location transfers, deposits and withdrawals.

Current accounts are ideal for carrying out day-to-day business transactions and the operational simplicity makes it a default choice for all size and shape of firms, companies, public or private enterprises.

Nodal Account

Nodal accounts are internal bank accounts which are meant for intermediaries — someone who acts as a link between two different parties, like a payment service provider or an e-commerce website/platform that sells the products of different merchants and gets money on the behalf of them. Or someone who is only providing a platform to sell product/services and not actually involved in manufacturing or keeping the inventory. So to keep the funds that intermediaries collect on behalf of partners one needs a nodal account. It helps in creating a transparent and clear view of all transactions with merchants and customers and also offers more security to both parties.

Whenever a user comes on the platform and purchases a product or services, the intermediaries collect the fund and later as per the settlement cycle settles the amount to the seller/merchant partners after deducting the service charge or commission. The settlement usually happens on T+2 or T+3 day of payment, T being the payment day.

The Nodal account is necessary for e-wallets and payment service providers. Except this, all other companies who hold money for third party settlement must keep a Nodal Account in a bank.

Escrow Account

An Escrow is a legal entity which holds funds on behalf of two other parties that are in the process of completing a transaction. Funds are held until they receive confirmation from both parties fulfilling the contract or predetermined services are provided.

Businesses usually use an escrow account for goal-based or long term projects to avoid financial loss and the likelihood of a dispute. An escrow safeguards the seller against a chargeback, non-sufficient funds, scam or fraud and the buyers gets to verify the deliverables or inspect the product and have the right to reject the payment for unsatisfactory services/product, thus takes the worry out of buying from unknown service providers.

An escrow works towards the buyer protection and safeguards one from losing money over unsatisfactory, damaged or undelivered products or services.

Currently, all major banks in India are offering business accounts, you can simply walk into any nearest bank and get an account suitable for your business. Here are the documents required to open a bank account for your business:

• Certificate of incorporation
• PAN Card issued in the name of the company
• Registered office address proof
• PAN and address proofs of all partners
• Board resolution
• Any other document as specified by the bank

We are hoping that our guide helped you in selecting a suitable business account and growing your business faster than ever!

And, if you are looking for solutions to accept payment, reconciliation and disbursal. Please get in touch with us at 09599771577 or email us at help@wibmopay.com. We’d be happy to talk you through any queries you may have.

Looking forward to helping you with our payment solutions.
WibmoPay Team