6 Benefits of a Business Bank Account

Is it worth having a separate business bank account? Limited companies and partnerships legally need to have a business account, but it’s optional for sole traders. However, there are many potential benefits to opening a business account, as listed below.

Rhiannon Philps Published on 14 June 2022.
6 Benefits of a Business Bank Account

If you’re a freelancer or a sole trader, you may be wondering whether to set up a business bank account. It may seem easier to just use a personal bank account for your business finances, especially when you consider that many business bank accounts will charge certain fees for using them.

However, there are a number of advantages to having a separate account for your business finances.

They’re designed for business use

This may sound like an obvious point, but business bank accounts are specifically designed to be used by businesses.

While sole traders could theoretically use a personal current account for their business finances, this will depend on the terms of the account. Some providers won’t allow you to use your personal account for business use, so if you planned to do this you would need to check the terms and conditions first.

With a business account, you know for sure that you can use it for business. However, bear in mind that some providers may set restrictions on the type and size of business that can open an account with them, so it’s still a good idea to check the terms first.

» MORE: Do I need a business bank account?

It’s easier to organise your finances

Having a separate account for your business can help you to manage your cash flow and fill out your tax return.

Initially, it may seem easier to use your personal account rather than going through the process of opening up a new business account, but this is likely to cause more problems for you in the long term.

If you use a personal account, important business transactions could be sandwiched between your latest supermarket shop and the present you bought for your friend’s birthday. This can make it difficult to figure out exactly how much money your business is spending and receiving, and will also make it more time-consuming to fill out your self-assessment tax return as you need to sift through all your personal transactions.

By having a separate business account, you can easily view your balance, track the income and expenditure of your business and see what payments, if any, you have outstanding.

It also prevents you from using your business finances for personal use and vice versa, allowing you to get a true picture of your business accounts and budget accordingly.

Furthermore, if HM Revenue & Customs (HMRC) needs to look at your business finances for any reason, it can just look at your business account rather than trawling through your personal transactions.

» COMPARE: Sole trader bank accounts

Many come with useful features

Personal accounts are designed for personal use, so they won’t typically come with any special features that could be useful for your business.

Business bank accounts, on the other hand, will often come with a range of features that can help your business. The benefits on offer will vary between providers, but they can include:

  • integrated invoice tools
  • ability to upload receipts
  • categorisation of your spending
  • integration with accounting software
  • account upgrades, for when your business grows, for example

Bear in mind that many business accounts will come with fees, such as a monthly charge or charges for certain types of transactions. However, some will offer free business banking, either permanently or for a limited period.

Details will vary between providers, so check their fee structure before opening an account.

» MORE: Business bank account charges explained

It looks professional

Image is important in business, and having a separate business bank account can help to create a more professional image when dealing with suppliers and clients.

It could help to build up your credibility and make you appear more trustworthy to clients, who may feel reluctant to send payments to a personal account.

» MORE: How to open a business bank account

You can build up your business credit rating

Having your own business bank account could help you to start building up your business credit rating.

Credit rating is important if you want to take out a loan, credit card, or other form of finance for your business. Even if you’re not planning on applying for finance at the moment, setting up a business account now can help you begin to build up a credit history for your business.

Make sure you manage your account efficiently and don’t go overdrawn, otherwise your credit score could suffer.

Bear in mind that, if you’re a sole trader, any applications for credit will be based on your personal credit score as you and your business are viewed as one and the same. If you recently set up as a limited company, lenders may still look at your personal credit history as you’re unlikely to have built up much of a business credit history.

» MORE: How to improve your business credit score

You’re prepared if you want to scale up

If your business is still relatively small, you may not feel like you need a business bank account right now.

However, over time, your business is likely to grow and handle more transactions, which could be hard to manage through a personal account.

Setting up a separate account for your business sooner rather than later can lay the foundations for future growth. It can make it easier to scale up your business, as you won’t need to worry about switching to a more suitable bank account while your business is experiencing other major changes.

Many business banking providers allow you to upgrade your account to access more features, such as invoicing tools, for example. This means that, as your business grows, your account may be able to grow with it.

» COMPARE: Business bank accounts

Image source: Getty Images

About the author:

Rhiannon is a financial writer for NerdWallet, with a particular interest in personal finance and insurance guides for consumers. Read more

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