What is a business account? Definition & benefits

A business account offers business owners a way to manage cash flow.

Using a personal bank account can make it tricky to keep track of your business finances. A business account is an option for managing business funds with clarity.

Having a business account is good practice for all business types, from contractors and SMBs to enterprises.

Open a stress-free business account
with Wise Business

Read on to discover:
What a business account is & how it works Types of business account Business account vs. regular account Pros & cons of a business account The Wise Business account

What is a business account and how does it work?

What is a business account?

A business account is a financial account used for business purposes. This type of account is usually maintained by a bank or financial institution. It offers business owners a simple way of separating their personal funds from their business cash flow.

With a business account, you’ll have access to more features designed to create less friction for day-to-day operations.

For example, a business checking account can come with invoicing software integrations to make bill payments easier and save time on reconciliation.

💡You can sync Wise Business with QuickBooks Online to see your unpaid bills in real-time and pay them seamlessly. You can also add your Wise Business account details to your invoice. Help your customers pay you in their local currency, and get paid faster as a result!

How can you open a business account?

To open a business account, you’ll usually need to provide some evidence for your business which can include:

• Employer identification number (EIN) or social security number
• Business formation documents
• A business license
• Ownership agreement

Read the guide for all you need to open a business bank account

What is the purpose of a business account?

The main purpose of a business account is to keep your personal and business finances separate.

If you don't separate your finances, you could run into tax complications and have a hard time budgeting.

Types of business account

What is a business checking account?

A business checking account offers features for managing day-to-day business funds. It also allows you to pay employees with payroll services.

You can’t earn interest on your earnings through a business checking account.

Read the list of top 10 best business checking accounts to find the best for your business

Business savings account

A business savings account offers business owners a way of earning interest on their income.

Depending on the amount of money coming in, you can benefit from varying APY rates. Some savings accounts are subject to fees.

Merchant account

A merchant account lets you accept card payments for products or services you offer. If you have an eCommerce store or wish to receive cashless payments, a merchant account is a must.

There are various types of fees to consider when signing up for a merchant account.

Payroll account

A payroll account is an account used exclusively for managing payroll services. With this type of account, you can pay employee wages and satisfy payroll tax liabilities.

It can be seen as an extra burden though, as it’s another business account to manage.

Wise Business offers everything you need to manage your business from one account. Pay invoices and employees, receive payments, and manage your cash flow all from one, easy-to-manage online account.

What is the difference between a business account and a regular account?

A business account allows you to control your business finances separately. It lets you do more with your money, such as make electronic transfers and pay with a business card.

It’s also worth considering that for LLCs (Limited Liability Comapnies) and corporations, a business account is mandatory. This is because the business is legally distinct from any individuals with these business types.¹

A regular account is exclusively for managing personal finances. It doesn’t include the same business-related features.

Can’t decide which account you should choose? Read the guide to find out if you need a business bank account

What are the benefits of a business account?

With a business account, there are several features you can benefit from, such as the following:

Separate your finances

Having an account dedicated to your business finances can help provide clarity. It can prevent business funds from bleeding into your personal funds and causing confusion.

Flexible payment methods

With a merchant account, you can accept card payments from customers. You need to have a business account in order to use a merchant account. This is crucial if you run an online store, and can help you secure more sales.

IRS compliance

For LLCs and corporations, a business account is mandatory. Even for small businesses, a business account can help ensure compliance with the Internal Revenue Service (IRS) and simplify tax filing.

Professional appearance

Aside from all the other practical aspects of having a business account, it simply looks more professional.

Giving personal bank account details for a customer to pay into can make your business seem unestablished and unprofessional. Having a business account can give customers more confidence in your business.

What are the cons of a business account?

Most business accounts charge fees for registration or continued use. Some fees are triggered if you drop below a minimum balance, while other fees can be charged on an ongoing basis.

For high-income businesses that can hold more than $250,000 in funds at any time, it’s worth knowing that the FDIC only insures you up to this amount. Anything over this limit won’t be protected by the FDIC.²

Open a business account with Wise - One stress-free account, multiple currencies

Traditional banks often come with monthly fees and additional costs for international transactions.

As a growing business, having an easy and low-cost way to manage finances in USD and other currencies can make all the difference.

That’s where Wise Business comes in. Wise Business is not a bank, but a smart online banking alternative. You can open and manage your account online, or via the app, whenever you need. No need to wait in line or book appointments.

Get a Wise Business account today

Wise is a safe and regulated financial service provider, already used by 13 million people and businesses. Get your account and see how your business can save time and money with Wise.

Read more about business accounts on the business account blog

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Sources:

1. Opening a Business Bank Account | Nolo
2. FDIC: Your Insured Deposits

All sources checked August 24, 2022.