Finding Solutions for Growing Businesses
COMMERCIAL CHECKING ACCOUNTS
WHICH ONE IS RIGHT FOR YOU?
You know you need a business checking account - but which one is right for you? Does your business need more than one account? How does a business checking account differ from a personal checking account?
NON-INTEREST AND INTEREST-BEARING ACCOUNTS
Because your checking account is the center of your financial management, you should be able to answer two questions about the account:
- How are the service charges calculated?
- Are there other services you can use with your checking account?
Most businesses use a non-interest bearing checking account. The fact is, only unincorporated businesses can open interest-bearing accounts.
If your busiess is unincorporated, you may legally open an interest-bearing checking account. Check the account out carefully, however, because it may not be to your advantage to do so. The service charges and/or the income allowance (explained in the next sesion) may be different than those on non-interest-bearing accounts. This means that the interest you earn may be moe than offset by service charges.
SERVICE CHARGES
Banks generally offer two types of business checking accounts: those with a minimum balance requirement and those in which service charges are calculated based on activity
"Minimum balance" accounts typically require that a certain balance be maintained in the account at all times. Sometimes a minimum average balance is required instead. There may or may not be a maximum activity level permitted on the account (i.e. no more than 50 debits in amy given month.) If both the balance and activity requirements of the account are met, there is either no monthly service charge or a small standard fee. Failure to meet the requirements can result in a service charge, which may be predetermined or may be based on activity on the account>
Other types of business checking accounts assess a service charge based on the activity in the account. There are generally no minimum balalnce requirements or activity maximums. Service charges are usually claculated based upon monthly maintenance fees and.or the level of account activity.
Account activity includes the number of checks (debits), the number of deposits (credits), and the number of items in each deposit (checks, etc.)
To offset these service charges, either partially or completely, your bank will give you an earnings credit. The earnings credit is based on your average monthly balance. This credit varies monthly depending on general economic conditions.
RELATED SERVICES
Your checking account should help you manage your cash flow more efficiently. Other bank services that will help you accomplish this include:
- Transferring funds between multiple checking accounts (as discussed in the next section)
- Transferring funds between your checking accounts and investment accounts
- Making those transfers by telephone
- Monitoring your checking account balance and account activity by touch-tone telephone as discussed in the "Cash Management Services" section.
MULTIPLE CHECKING ACCOUNTS
The decision on how many checking accounts to maintain for your business can have a major impact on its efficiency. Multiple accounts are not right for every business. You can decide whether or not your business should have more than one account by asking these two questions:
- Is there a special reason to maintain more than one account?
- If there is a special reason, will the benefits gained from the separate accounts outwigh their cost?
Your business may need separate accounts for payroll, union accounts, client's escrow money, lottery sales, or other purposes. Your CPA is the best source of advice about your need for separate accounts.
The cost of additional checking accounts take two forms: hard dollar costs and
internal costs.
Internal costs are the bookkeeping costs you incur in balancing and monitoring multiple accounts. It is important that you identify how much this work is really cositng you.
A variation of the multiple checking account arrangement called "zero balance accounts" is described in the "Cash Management Services" section.
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