Ease The Business Banking Headache

Managing cash flow has always been a bit of a headache for small businesses when taking care of their business banking. Customers often leave payments until the last minute or even overdue and this means that forward planning with money management is near on impossible.

Many small businesses leave financial planning and tax matters until the last minute because of this which can cause problems and incur financial penalties for the 35% of companies that miss deadlines through this practice.

However, there are things that the small business owner can do to simplify his business banking and even make themselves that little bit richer.

Changes being phased in as part of the new banking code governing small and medium enterprises (SME's) mean that once a business cheque is paid you, you can be sure it will be cleared within six days. This will enable financial planning to run a little more smoothly and company bosses can rest assured that that cheque will not bounce.

Many businesses, particularly small ones, organise their business banking by setting up their current account and putting all finances through this with no further consideration as to how it can work for them. With a significant amount of money in a SME current account, it would be better to pay it into a business deposit account.

With a minimum deposit of 50,000, pounds interest rates are much more attractive and your money will grow without you having to touch it. Banks offer a fixed rate of interest for a fixed term on a 'Term of Time' deposit. The longer you can afford to have your money tied up for, the better the interest rate.

If you are not keen on having your money completely inaccessible for any length of time, try incorporating a 'Restricted Access Deposit Account' in your business banking. This will offer a better interest rate than your average current account and will allow you a limited amount of withdrawals before incurring penalty charges.

When it comes to SME's, it is reported that only four of the high street banks hold up to 90% of the business banking accounts. With complicated systems for switching between banks and very little incentive to do so, competition has been weak. In fact, only 8% of small businesses had moved their business banking account in the last three years.

On top of this, price controls were set in place by the Competition Commission after investigations into the SME banking market in 2003.

An Office of Fair Trading study has revealed that there really needs to be more competition in the business banking market to ensure customers are getting the best deal with the choice to shop around.

Price controls are now to be lifted with banks still under an obligation to advertise and inform their account holders of any price changes. The process of switching your business banking to a different bank has also been made easier and banks will now have to work harder to keep your custom.

So, with all these new measures in place, business banking should be simpler, more competitive and more profitable.

About the author:
Expert banker Catherine Harvey looks at some of the answers to business banking difficulties. To find out more please visit www.lloydstsbbusiness.com/accounts/index.asp/

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