April 26, 2023

What is a Commercial Account - Meaning & How to Open

Commercial accounts are specialised financial accounts designed to serve businesses and organisations. They enable businesses to carry out their financial transactions smoothly by providing services tailored for commercial operations.
In this post we cover the various aspects of commercial accounts.

Features of commercial accounts

Commercial accounts are tailored to meet the unique needs of businesses. They offer a wide range of products and services such as loans, overdrafts and cash management solutions. These accounts also offer services for import and export businesses including letters of credit and foreign exchange transactions.
They have higher transaction limits compared to personal accounts which can be customised. This flexibility allows businesses to conduct large-scale transactions without interruptions.
Furthermore, commercial accounts support multiple employee access which can be personalised based on the roles and responsibilities of the employees. This feature ensures smooth operations and efficient management of financial transactions.
Most importantly, commercial accounts often have the feature for a comprehensive online banking platform. It can account for bulk payments, payroll management and tax filing.

Types of commercial accounts

Commercial accounts can be classified as:
Current Accounts: Current accounts are the most common type of commercial account. They facilitate day-to-day business transactions, offer unlimited deposits and withdrawals and have a chequebook facility. In India, banks offer different types of current accounts such as Standard Current Accounts, Premium Current Accounts and Specialised Current Accounts for sectors of import-export, manufacturing and services.
Savings Accounts: Although less common, some businesses opt for savings accounts and earn a modest interest on the deposit. These are often used by smaller businesses or sole proprietors who may not require all the features of a current account.
Term Deposit Accounts: Term or fixed deposit accounts are used by businesses to park surplus funds for a fixed period. The duration can range anywhere between 7 days to 10 years and yield a higher interest rate than savings accounts. They act as a safe and low-risk investment option.
Foreign Currency Accounts: Foreign currency accounts are best suitable for businesses involved in international trade or foreign currency transactions. They let businesses hold and transact in foreign currencies, eliminating the need for frequent conversions and reducing currency risks.

Benefits of commercial accounts

Commercial accounts work as a streamlined platform for businesses to manage their finances. They can monitor transactions, reconcile accounts and generate financial reports. This allows businesses to focus on their core operations.
Additionally, businesses can access various credit facilities like business loans, overdrafts and trade finance services which helps them manage their working capital, fund expansions and meet other financial requirements.
Components like overdrafts, bulk payments and cash management solutions assist businesses to manage their cash flows. It can significantly contribute to a business's financial stability.
Commercial accounts also bring forth features like multi-factor authentication, encryption and fraud monitoring to ensure security and protection.

Eligibility for commercial accounts

The eligibility for opening a commercial account in India varies depending on the bank and the type of account selected. However, some standard criteria that banks generally consider are:
Type of business entity: The many types of businesses that can open commercial accounts are sole proprietorships, partnerships, limited liability partnerships (LLPs), private limited companies and public limited companies. Non-profit organisations and trusts can also open commercial accounts but are subject to specific terms and conditions.
Registration and documentation: Businesses need to provide the proof of registration like the Certificate of Incorporation, Partnership Deed, or Registration Certificate to open commercial accounts. Other documents like PAN cards, GST Registration certificates, memorandums and Articles of Association are also required
KYC (Know Your Customer) compliance: Businesses have to comply with the bank's KYC norms to open commercial accounts. It includes submitting the identification and address proof for the business entity and its authorised signatories. Aadhaar Card, Passport, Driving License and Voter ID Card are some of the common documents which may be required.
Initial deposit: Most banks require businesses to make an initial deposit while opening a commercial account. The minimum deposit amount varies according to the bank and the type of account.

Tips for choosing the right commercial account for your business

Selecting the right commercial account is essential but it can also be overwhelming with so many available options. Read on to know more about how to choose the best commercial account for you.
Assess your business requirements: Consider factors such as transaction volumes, frequency of international transactions and credit facility requirements. This will help you identify the type of account that best suits your business.
Compare interest rates and fees: Different banks offer different interest rates. They may also charge fees for account maintenance, cheque book issuance and online transactions. Compare rates and fees across different banks to find the most cost-effective option for your business.
Explore value-added services: Many banks offer additional value-added services like business advisory, trade finance solutions and customised cash management tools. Choose an account that offers relevant services for your particular business
Review customer support and responsiveness: Efficient customer support is crucial for the timely resolution of queries and concerns. Opt for a bank that is reputed for its dedicated and prompt customer support.
Analyse the bank’s digital capability: A robust online banking platform is indispensable in this age and you should look for features such as ease of use, mobile banking, bulk payments and payroll management. A bank with an user-friendly and feature-rich digital platform will streamline your financial operations.

Conclusion

Commercial accounts provide services and features tailored for commercial operations. They enable businesses to manage their finances efficiently and effectively and offer numerous benefits. Simplified financial management, access to credit facilities, improved cash flow management and enhanced security are some of those benefits.
To open a commercial account in India, your business must meet the eligibility criteria. It involves being a registered business entity, providing necessary documentation, complying with the KYC norms and making an initial deposit.
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Disclaimer

The investment options and stocks mentioned here are not recommendations. Please go through your own due diligence and conduct thorough research before investing. Investment in the securities market is subject to market risks. Please read the Risk Disclosure documents carefully before investing. Past performance of instruments/securities does not indicate their future performance. Due to the price fluctuation risk and the market risk, there is no guarantee that your personal investment objectives will be achieved.

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