How To Open A Business Checking Account – Small business owners need to know what purpose each serves, their key characteristics, and how opening them will affect their business.
In short, if you want to collect credit card, debit card, and other online payments from customers, you will need to open two types of accounts.
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By reading this article, you will get a basic understanding of both accounts. You’ll also learn how they differ, and how they can benefit your small business.
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A merchant account is a type of business bank account that enables businesses to accept credit card payments, as well as online payments.
Online businesses collect information for these types of cashless payment through payment gateways, such as the one below:
When customers enter their card or enter card details into a payment gateway on a company’s website or app, the information is sent to the merchant bank – the bank that issues your merchant account.
This bank facilitates the communication between the various parties involved in processing the cashless payment and ensures the correct transfer of funds from the customer’s account to yours.
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First, the receiving bank sends the transaction information to the customer’s card issuer, also known as the card issuer, who checks whether they have enough money to make the payment.
The card issuer authorizes or declines the transaction, then sends its response, in the form of data, to the electronic terminal where the customer paid.
If the supplier approves the transaction, the payment is processed and transferred to your merchant account, where it will be held for an average of 24-48 hours before it enters your merchant bank account and is available for usage.
All of this happens in seconds and incurs different fees for the merchant account holder depending on the provider.
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These fees typically run anywhere from 1.75% to 3% of the dollar amount of each transaction, plus 20 to 30 cents per transaction.
For example, popular account merchant Square has rack fees of 2.6% + 10 cents for contactless payments, chip cards (either swiped or embedded), and swiped cards. magstripe.
Another reason is that the bank also cannot make money for you by renting a card facility.
A business bank account allows business transactions and is a legal requirement for all businesses except sole proprietorships.
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That’s where the money from the merchant account ends up, along with money and deposits from your customers.
Funds in a business bank account are often used for normal business expenses, such as monthly electricity bills, software subscriptions, or payroll processing costs.
However, there are some special features of a business bank account that you should know before opening one.
First, most banks charge a monthly or annual fee to keep your account open. The amount of this fee depends on the bank.
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Bank of America rewards its customers for maintaining a high balance, but many banks may take a different approach, hitting you with fees to lower their minimum balance.
Some banks will set a limit on the number of free transactions you can make in a certain period of time – usually around 200 per month.
Typically, the more money you have in the account, the more transactions you can make. Banks often give customers rewards for giving them more money.
Finally, business bank accounts also often come with handy reporting tools to help you with taxes, cash flow management, and expense tracking.
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Businesses use a business account and a business account together to process and accept credit card, debit card and online payments from customers.
In terms of accepting card payments, the main difference between a merchant account and a business account is that credit card payments made to a merchant account will process faster than those made to a business account.
When a merchant’s bank account accepts a card payment, the acquiring bank and issuer will delay payment until they both approve the transaction.
A merchant account, on the other hand, does not go through this delay, prioritizing the merchant’s money even though online transactions are still ongoing.
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They check the merchant through the application process, while the business bank account offers them to fill out several forms.
Another important difference is that business bank accounts allow for direct withdrawals and deposits into the account. This is not possible in a merchant account.
Thus, business bank accounts are mainly used to track and pay daily business expenses, such as office rent, salary or advertising:
After the credit card purchase from the customer is approved, the money will go into your merchant account.
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From there, you can transfer money to your business bank account, where you can use it to make purchases, pay bills and run your business.
Merchant accounts are necessary for businesses that want to accept credit, debit, and other online payments from their customers, without waiting days for the acquiring bank and supplier to approve each transaction. .
Allowing customers to pay cashless and online is becoming increasingly important in this economy, so more and more businesses are opening merchant accounts.
If you are an online business, a merchant account is especially important, as crowdfunding is not a viable option.
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Instead, with a merchant account, businesses can set up online payment gateways where customers can shop online, without interacting with employees, from their laptop or phone.
Businesses also need merchant accounts. It is rarely a business that only receives money. Customers are often confused when they encounter a credit or debit card.
Even mobile businesses like taco trucks accept credit and debit cards these days. They use the mobile card terminals provided by their merchant account provider.
That said, be aware that you also need to set up a business bank account before applying for a merchant account.
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Acquiring banks (providers of merchant accounts) require businesses to deposit their funds from a merchant account into a business bank account, rather than into the account of a person or entity. one.
You can accept payments in different currencies, manage your cash flow, and show the authenticity of your business, thus building authority on your website.
As each generation relies on cashless payment, it is important to set up your business with a merchant account to easily process credit cards, debit cards and other forms of online payments.
If you want to open a merchant account to collect cashless payments, you need to have a merchant bank account.
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Even if you don’t want to offer cards as a payment option, your business may be required by law to have a business bank account, unless you are a sole proprietor. .
If you run a business, a Limited Liability Partnership (LLP), or a Limited Liability Company (LLC), a business bank account is the way to go.
Even homeowners should consider opening business bank accounts, as they provide additional legal protection from lawsuits.
Only the money in the bank account is at risk of seizure. This is one of the many reasons to keep your business finances separate:
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Another benefit of having a business bank account is that it makes your company look professional and trustworthy to customers.
When you can accept credit and debit cards, customers trust that you are up-to-date.
Using a business bank account also makes tax preparation easier to manage. Most businesses pay business tax quarterly.
Having all of your expenses and income in one place on the Internet makes it easy to estimate these quarterly tax returns.
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On the other hand, if one owner uses a bank account as a proxy for customer payments, it can be difficult to tell which money comes from business sales and which comes from Venmo. from a friend or other disconnected source. business.
It is also important to note that if your business is subject to an audit and you do not maintain a business bank account, the auditor may be able to access your account.
Another benefit that may not get enough attention is how opening a business bank account lays the foundation for a good relationship with the bank, which can help you secure business loans and other types of financing. down the line.
It’s a better experience in these sometimes tricky financial situations with a bank you trust and enjoy working with.
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The part that should take a lot of time, as it is the most important to get right, is choosing the best bank for the specific needs of your business.
Therefore, it is important that you set up your business to accept these cashless methods from your customers. They will surely appreciate it.
Both are necessary to accept these payments, as well as other online methods, without having long delays. Earn 1.51% APY and 1% cash back. In addition, there is no monthly fee and unlimited transactions. Open an account in 5 minutes today.
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