What is a Current Account
A current account is a zero-interest bank account which is opened by various types of business entities to facilitate with their day to day banking operations. Current account opening is a necessity for entities with a high number of daily banking transactions. These transactions could include deposits, withdrawals, transfers, payments etc. In India, at present, current account opening minimum balance is Rs. 10,000/-.
Some businesses, generally with small-scale operations, such as freelancers and sole proprietors operate their savings bank accounts for business transactions due to the perceived difficulty in operating a current account because there are no rules and regulations necessiating current account opening. Not only is this habit financially unhealthy, but it also deprives a small business of various benefits associated with a current account.
Advantages offered by a Current Account
Let’s have a look at various factors that not only prove how a current account is beneficial for a business entity but also shows that a current account only can meet every requirement of your organization: -
- No Withdrawal Limits: - Current accounts do not have any withdrawal limits, therefore you can make unlimited withdrawals from the account by paying a minimal fee, only if chargeable according to prevailing government norms.
- No Deposit Limits: - A base branch is where the account has been opened. As a current account holder, you can make unlimited deposits at your base branch and as well as from other branches of the same bank by paying a small cash handling fees.
- Ease of Payments: - Current Account will enable your organisation to make timely payments to the creditors via cheque, Pay order or Demand Draft. Similarly, payments can be received from your debtors through these means. For current account holders, banks charge a little fee for this facility.
- Overdraft Facility: - A current account will enable your business to obtain short-term credit facility in the form of “Overdraft Facility” based on the account history. This facility allows a company to overcome short-term liquidity crisis. A Bank may or may not charge interest against this facility.
- Professionalism: - in the highly competitive business environment it is necessary for a business to appear professional to the clients as well as suppliers. A current account has the organisation’s name printed on the cheques, which reinforces the opposite party’s trust in the business.
- Creditworthiness: - During regular course of business, your organisation may need to prove its credit standing to the creditors. A current account will enable your organisation to apply for the requisite Also, if your organisation engages in foreign trade, you will require a bank guarantee or letter of credit from time to time to prove your creditworthiness to the foreign counterpart(s).
- Monthly Statements: - Businesses operating a current account can obtain their monthly bank statements in hard copy or through e-mail. If a business uses internet banking, they can conveniently download their bank statements for desired periods. This helps with the reconciliation process as well as ensures early detection of any errors.
- Internet Banking: - By opting for internet banking facility with a current account, your firm can avail various beneficial services such as Online transfers via NEFT/RTGS/IMPS, Payment of Taxes, Download tax challans for smooth flowing business transactions.
- Loans: - It is mandatory for a business to be running a current account to obtain any type of loan from a bank or another financial institution.
- Salary Accounts: - Organisations having current accounts can also extend the benefits of salary accounts for their employees, which themselves are zero balance accounts. This facility will ensure timely and smooth payment of your employee dues without any hassles.
- Safety Checks: - multiple signatories can be registered with a current account with varying transaction approval limit. This ensures that company funds are not misused, and a proper safety system is in place. Also, in case one authorised signatory is travelling, another authorized signatory can sign cheques to ensure smooth day to day operations.
- Separate business finance from Personal Finance: - It is essential to keep a clear distinction between personal finances and individual finances in case of freelancers or sole proprietorships. A current account enables such businesses to record transactions pertaining to business separately from transactions personal in nature. This helps in portraying a clearer picture of the business finances.
With host benefits to offer, current account opening is a must for every business. Not only does it ease day to day operations but also opens a host of opportunities for the organisation.