Banking current account tips for small businesses

No get rich quick scheme will ever tell you this but there is a simple way budding entrepreneurs can make more money - just review your business current account, check out the charges, choose the most reasonable and switch! In one straightforward move you could be hundred of pounds richer a year.

Some 4.3 million enterprises in this country are missing out on £502 million a year by staying with banks that don't pay them the best deal on their business bank account, according to a study by Alliance & Leicester Commercial Bank (A&L).

A&L's research also found that the amount banks charge for handling your cash and non-cash transactions varies greatly. It worked out that an average small business, with a turnover of less than £1 million, could spend £425 a year in bank charges for cash transactions but by switching bank account (guess who to...) could cut this to £80 a year.

Collectively, cash transactions cost small businesses £300 million a year and non-cash transactions such as direct debits add another £202 million, which, said Alliance & Leicester, are available free from some business current account providers. Bank charges are something of a bone of contention after the Competition Commission declared in 2002 that some banks were overcharging small businesses by £725 million a year.

The Competition Commission set out new rules for the four clearers to follow and the effectiveness of these is now being investigated by the Office of Fair Trading. We won't know what it has discovered until its report comes out this December.

The four big banks are the main providers of business bank accounts with others such as the Co-operative Bank and Alliance & Leicester also in the market. The big boys all charge transaction fees for money going in and going out. For example, NatWest charges 57p per £100 for cash deposited; Lloyds TSB and Barclays 55p; and HSBC 50p. They also make charges for each cheque deposited usually around 28p and then around 60p for each cheque written; and between 30p and 54p for each direct debit and standing order.

Although seemingly small amounts, these charges can soon mount up and this isnt what a fledgling business needs to growth and thrive. Around 80% of small business owners bank with one of the big four banks and A&L does have a point - it is worth shopping around.

As you would expect, A&L's own account looks better value than the big four. There are no charges for depositing the first £1,000 a month and after that you pay 23p for each £100 in cash. If you don't pay in £1,000 a month, there's a fee of £5 a month. A&L also has a website www.free-not-fee.co.uk, which you can use to see if you would be better off moving your account.

Out of the few building societies that offer a business current account Norwich & Peterborough's business gold current account charges 42p for writing a cheque, 14p for standing orders and there's no monthly charge, which is all considerably less than its competitors.

26 September 2006 © Moneyextra.com

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