How Do You Open a Business Checking Account?

How Do You Open a Business Checking Account?

Opening a business checking account isn’t much different from opening a personal account, but it’s an important step when it comes to running your business. A business account can help you keep your personal finances separate from your professional transactions. This, in turn, can make growing your credibility and completing your taxes easier, among other benefits.

The requirements to open a business checking account tend to vary, depending on the financial institution and other factors like your location and business entity. But, in most cases, it’s generally a straightforward process to start one.

Let’s take a closer look at:

•   What a business checking account is

•   How it works

•   How to open a business checking account.

What Is a Business Checking Account?

If you have a personal checking account, you may wonder, “What is a business checking account anyway? Do I really need a separate account?” Let’s get those questions answered. A business checking account is similar to a personal checking account in that you have flexibility in your day-to-day banking. Depending on the type of account, you may be offered features such as unlimited transactions, a debit or ATM card, and check-writing capabilities.

In some cases, you may even be able to earn interest. But, and this is important, business checking accounts are meant to house a company’s funds. Therefore, there may be different features and requirements to maintain the account. Check with a few banks to get acquainted with the details.

Now, for that second question — “Do I need a separate business account?” — the answer is probably “yes” if you own a business. Even a brand new, currently part-time endeavor may need a small business account. In terms of a business vs. personal checking account, you want to keep that biz income separate for tax purposes and to gain legitimacy for your enterprise. Also, if you need to be paying employees or vendors, a business account is the way to go, so as not to get those kinds of transactions mixed up with, say, your home-loan payments and other personal expenses.

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How Does a Business Checking Account Work?

Business checking accounts are quite similar to personal checking, but they typically have different limitations, fees, and balance requirements. For instance, business checking accounts may come with higher bank fees, especially if your business deals with a large amount of transactions. In that same vein, there may also be higher minimum balance requirements to waive monthly fees or to earn interest.

That’s not to say they aren’t budget-friendly options. Many online business checking accounts are being offered to smaller businesses or sole proprietors, though they may not offer interest earnings.

You can use a business checking account to conduct transactions such as bill paying, receiving funds, and writing checks. In many cases, you may even be able to order debit cards for you and your employees to withdraw money and make purchases. The primary account holder (such as the business owner) can set ATM withdrawal limits and spending limits for employee cards.

Can Anyone Open a Business Checking Account?

Almost anyone can open an bank account as long as they have the right type of documentation. In general, you’ll need to prove that you own a business. Now, what if you’re a sole proprietor or an independent contractor (say, a gig worker)? Even if you don’t have the usual kind of paperwork, you may still be able to open a business checking account. However, you’ll probably need to speak with the bank to see how you can do so.

What You Need to Open a Business Checking Account

The types of documentation you’ll need to provide depends on the bank at which you’re opening a business bank account and also on your legal business entity. Typically, sole proprietors will only need to provide their personal information, whereas LLCs and corporations will need documentation about the company and details from each of the majority owners.

Here’s a list of what kind of identification and documentation you’ll most likely need to provide to start your account. This applies whether you are heading to a bricks-and-mortar branch or opening an online business checking account:

•   Personal information: Financial institutions will require some form of government-issued photo ID such as a driver’s license or passport. If you have multiple business owners, then banks may require personal details of each owner.

•   Employer Identification Number (EIN): Every business should have an EIN, though sole proprietors and single-member LLCs may be able to submit their Social Security number in their application.

•   Business details: You’ll need to provide your business name, address, and, if applicable, your DBA (doing business as) name. In many cases, you’ll also need to disclose the industry your business falls under.

•   Documentation: Depending on your business entity, you’ll have to provide your business name registration certificate, business license, articles of organization, partnership agreement, and operating agreements.

•   Opening deposit: To finalize your business account opening, you may be required to deposit a certain amount of money. Check with your financial institution to determine what that amount would be.

Do I Need Revenue to Open a Business Bank Account?

Most banks don’t require you to be earning revenue in order to open a business checking account. That means if you’re starting a business, you don’t need to wait until you earn a certain income to open that account. So it can be a smart move to put opening your business checking as one of the first items on your to-do list when you start your enterprise. As long as you have the required documentation needed, you should be able to open an account.

Benefits of a Business Checking Account

Opening a business checking account comes with a myriad of benefits, including:

•   Liability protection: If you use a personal checking account for business purposes and have legal issues, it’s more likely that a court will have the right to go after your personal assets. That’s because it doesn’t look like you’re operating a separate business. Opening a business account generally shields you from this potential issue, especially if you’re registered as an LLC or corporation.

•   Tax simplification: Having a business checking account allows you to completely separate your personal and business finances. That way, it can help you include all the transactions you need to file your taxes accurately and efficiently. Plus, it’ll be easier to scrutinize your expenses to see whether you can identify further deductions.

•   Credibility: Your business may be taken more seriously if you used a business checking account. Your clients or vendors may be more likely to trust you if your payments or checks are coming from an account with your business name on it. These types of accounts also help when you decide to apply for small business financing or credit card. In other words, establishing your business could show business credit bureaus you’re serious enough of an entity to create a credit report for your company.

•   Potential future growth: Having a business checking account can help prevent any potential hiccups down the road, such as having to find ways to make payroll for your employees.

Things to Consider When Choosing a Business Checking Account

Many banks offer different business checking accounts suited to a variety of needs, so it’s important to look at the following features when making your decision. There’s probably an account available that fits your needs just about perfectly:

•   Fees: Most business checking accounts charge monthly maintenance fees. You may be able to have them waived, but you’ll need to meet certain requirements such as maintaining a certain balance.

•   Interest rates: In general, interest rates for business checking accounts are lower when compared to savings or money market accounts. However, you may still be able to earn a small return on your deposits. Assuming the fees may be higher for interest-bearing accounts, do some calculations to determine whether the APY makes it worth paying them.

•   Transaction limits: Business checking accounts tend to come with deposit and withdrawal limits per month. If you go over a certain limit, you may be required to pay an additional fee.

•   Bundled services: Some business checking accounts may offer unlimited employee debit cards, dispense free checks, or waive fees if you sign up for a business credit card or merchant services.

Do You Need a Business Checking Account?

Getting a business checking account is a smart move for anyone looking to launch and grow their business. Even if you’re the only employee (and plan to be for a long time), having this type of account still makes sense.

However, if you’re running a side business, are a gig worker, and don’t intend on venturing away from your full-time job, it might not be necessary. As long as you keep meticulous records to ensure you know what your business transactions are, you may be able to get away with only having a personal account. Note the use of the word “may.” If your business grows or just keeps chugging along for a number of years, you may at a later date regret not having gotten a separate business account. It can simplify and clarify your finances.

The Takeaway

If you’ve started or are running your own biz, it’s a smart idea to open a separate account to differentiate your business and your personal transactions. Applying is typically quite straightforward, involving presenting identification and other business documents. In return, you’ll get the flexibility, legitimacy, and services you need to conduct business professionally. Plus, you’ll keep your enterprise separate from your personal finances and avoid confusion.

If you’re looking to rev up your personal banking, however, give SoFi a look. Open linked Checking and Savings with direct deposit, and you’ll have access to your paycheck up to two days early, you won’t pay any account fees (including no overdraft fees) and you’ll earn a super-competitive 1.25% APY.

Let SoFi help you bank much better.

FAQ

What is the difference between a personal and business checking account?

Both types of accounts are similar, except business checking accounts are meant for corporations and business owners, and they feature services that cater to professional needs.

What is the purpose of a business checking account?

The purpose of a business checking account is to facilitate banking for businesses with needs like paying vendors and employees and paying for supplies. It also separates personal and business assets for liability purposes. What’s more, a business account provides a company with more legitimacy.

What makes an account a business account?

Business accounts are designed for professional needs, which may mean many more transactions than a personal account typically engages in, as well as ways to pay employees and vendors. They may have merchant services too, which incorporate credit and debit card payments.


SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi members with direct deposit can earn up to 1.25% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 0.70% APY on all account balances in their Checking and Savings accounts (including Vaults). Interest rates are variable and subject to change at any time. Rate of 1.25% APY is current as of 4/5/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Photo credit: iStock/Halfpoint
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Opening a Foreign Currency Bank Account Online

Opening a Foreign Currency Bank Account Online

A foreign currency bank account is typically a bank account that processes transactions made in currencies other than U.S. dollars. Businesses may use foreign currency bank accounts to conduct international transactions and support operations in other countries. It can be a major convenience because of its flexibility with currencies.

Individuals may also consider funding a bank account with foreign currency in certain situations, which we’ll cover in more detail in a moment. Read on to learn:

•   What a foreign currency account is

•   How to open a foreign currency account

•   The pros and cons of a foreign currency account

•   The fees associated with this kind of bank account.

What Is a Foreign Currency Account?

A foreign currency bank account is an account that’s designed to hold money denominated in foreign currencies. It may also be referred to as a multicurrency or borderless account. It is a simpler way to deal with regular deposits of foreign currencies.

The types of currencies accepted for deposit or used for withdrawals can be determined by the bank. Some of the currencies your bank may process include:

•   Australian dollars (AUD)

•   Canadian dollars (CAD)

•   Euros (EUR)

•   Great Britain pound sterling (GBP)

•   Japanese yen (JPY)

As mentioned, foreign currency accounts can be opened for business or personal reasons. Businesses that operate globally may require these accounts in order to send payments to vendors or receive payments from international clients.

You might open a foreign currency account for yourself, as an individual, in a few different circumstances. Perhaps you live or are working abroad, Or maybe you regularly make payments overseas or need to send money to friends and family internationally.

Depending on the financial institution, you may be able to open a bank account with foreign currency in order to:

•   Make deposits and withdrawals, similar to the way you might use a typical checking account, more conveniently

•   Earn interest on deposits

A foreign currency bank account that’s set up as a savings account might follow typical savings account rules. For example, the bank may limit you to six withdrawals from the account per month (though these regulations have largely been loosened since the COVID-19 pandemic). If that limit applies and you exceed it, the bank may impose an excess withdrawal fee. Keep in mind that any fees assessed for a foreign currency account may be processed in U.S. dollars.

Foreign currency accounts at FDIC member banks enjoy FDIC protection, up to the established limit. The FDIC insures banking customers up to $250,000 per depositor, per financial institution, per account ownership type. This may well reassure you about the safety of your funds.

One thing to note is that foreign currency bank accounts aren’t used for forex trading. If you’re interested in trading foreign currency as an investment, you’d need to open a separate brokerage account for that. There are a number of online brokerages that offer the option to trade forex alongside other investments, such as stocks and exchange-traded funds (ETFs).

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Typical Requirements to Apply for a Foreign Currency Bank Account

If you’re interested in how to open a foreign currency bank account, it’s important to know what documents you’ll need. That way, you can gather the necessary materials and speed through the application process. The specifics can vary from bank to bank but generally, you must:

•   Be of minimum age to open an account, typically 18 or 19

•   Have a valid, government-issued form of identification

•   Provide identifying information, including your name, address, date of birth and Social Security number

•   Meet minimum-deposit requirements

•   Provide proof of income and employment

The requirements aren’t that different from those for a foreigner opening an account in the U.S. Whether you can apply for a foreign currency bank account online or not will depend on the bank. Some banks do allow you to start the application online, while others require you to open an account over the phone or in-person at a branch. Check with yours to learn the exact protocol.

You may also need to already have at least one other account open with the bank before you can apply for a foreign currency account. If the bank imposes this requirement, you may also need to maintain a specific minimum balance in that account to qualify.

Pros of Foreign Currency Account

If you’re curious about foreign currency accounts, it may well be because you are tangled in some red tape as you try to bank in, say, both U.S. dollars and euros. A foreign currency bank account can help meet certain money management needs, like toggling back and forth between two kinds of currency. Let’s explore the pros of foreign currency accounts.

•   When you deposit funds into your account, you can hold it as multiple currencies, including leftover foreign currency from travel, in one place. You don’t have to exchange foreign currency before you can use it.

•   Being able to switch among different currencies could allow you to leverage the most favorable exchange rates.

•   You may be able to earn interest on your balances.

•   Multicurrency bank accounts can be used for personal or business purposes.

•   Sending payments or money in foreign currencies can be more convenient.

A foreign currency account could also come in handy if you travel. You can use a linked debit card to make purchases or withdraw cash in each country you visit, without having to get traveler’s checks from your bank.

So how do traveler’s checks work? If you’ve never used them, you might not know that these are paper financial instruments that can be used the same way you would a paper check or cash. Thanks to the convenience of credit cards and debit cards, however, travelers don’t need to rely on them as much to make payments when visiting destinations outside the U.S.

Cons of Foreign Currency Account

While a foreign currency bank account might be appropriate in some situations, there are a few drawbacks to consider. Specifically:

•   Your bank can charge you fees the same as you might pay for any other account.

•   Interest rates and APYs may be low.

•   Initial deposit requirements or minimum balance requirements may be on the higher end.

•   Changing currency rates can affect the value of the money in your account.

Another drawback of foreign currency accounts is that not all banks offer them. And some banks may only offer these accounts for businesses, not individuals.

What Are the Fees Associated With a Foreign Currency Account?

Foreign currency accounts can have fees the same as any other type of bank account. Depending on the bank, some of the fees you might pay include:

•   Monthly maintenance fees

•   Excess withdrawal fees (for savings accounts)

•   Overdraft fees

•   Foreign transaction fees

•   Currency conversion fees

When comparing foreign-currency bank accounts, take time to review the details thoroughly. It’s important to understand which currencies you can hold, which fees you might pay, and whether you’re required to maintain a minimum balance in the account. Once you’ve scoped those details out, see if the benefits of this kind of account will outweigh the fees. It could wind up being a good way to simplify your banking life if your financial life requires frequent foreign transactions.

The Takeaway

Foreign currency accounts can simplify money management if you regularly send or receive money in currencies other than U.S. dollars. Opening one of these multicurrency bank accounts is not that different from opening any other type of account. It can be a major convenience if your daily life involves receiving and/or sending funds overseas — and a good way to take control of your international financial life.

If you’re looking for checking and savings accounts for your everyday finances, try banking with SoFi. Our high yield bank accounts, when opened with direct deposit, offer you all kinds of terrific perks, like a hyper-competitive 1.25% APY and access to your paycheck up to two days early. You’ll also pay zero account fees.

Start banking better with SoFi today.

FAQ

Can you open an account in foreign currency?

Generally, you can open a foreign currency bank account if your bank offers this kind of account and if you meet eligibility requirements. Foreign currency accounts may require higher minimum deposits than other types of bank accounts, which could make them better suited to high net-worth individuals.

Which US banks offer foreign currency accounts?

Some of the U.S. banks that offer foreign currency accounts at press time include Citi, Citizens Bank, HSBC, PNC Bank, and TIAA Bank. You can contact your current bank to find out if foreign currency accounts are available.

Should I open a foreign currency account?

Opening a foreign currency account could make sense if you regularly deal with banking transactions in foreign currencies. A multicurrency bank account could offer convenience and potentially save time when you need to send or receive money internationally.


SoFi members with direct deposit can earn up to 1.25% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 0.70% APY on all account balances in their Checking and Savings accounts (including Vaults). Interest rates are variable and subject to change at any time. Rate of 1.25% APY is current as of 4/5/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Photo credit: iStock/RgStudio
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Understanding ACH Returns: What They Are & How to Return an ACH Payment

Understanding ACH Returns: What They Are & How to Return an ACH Payment

Sometimes things just don’t go according to plan, and those quick, convenient ACH payments wind up getting returned or needing to be reversed. Usually, these electronic transactions run smoothly, but at times, the funds don’t or can’t get from point A to point B.

Here, we’ll take a look at why ACH payments are sometimes returned. We’ll cover:

•   What ACH turns are

•   Terms to know about ACH returns

•   What the difference is between an ACH return and a Notice of Change

•   How to return an ACH payment

What Are ACH Returns?

Are you wondering, “Can ACH payments be returned?” The answer is, “Most definitely!” These electronic transfers of funds are not necessarily a one-way street.

While most payments are likely to go through, ACH returns occur when an ACH payment (aka an online payment transaction) fails to be completed. This can happen for a few reasons, such as:

•   The originator providing inaccurate payment information or data

•   The originator providing non-existent or inadequate authorization

•   The originator isn’t authorized to debit the client’s account with an ACH payment

•   Insufficient funds to cover the transaction (which can happen, especially if the person paying doesn’t balance a bank account regularly)

Next, let’s look at how an ACH return transpires. If a merchant wants to debit their client’s account, the merchant’s bank (at the merchant’s request) will send a request for an ACH debit from the client’s account. The client’s relevant ACH network will then receive an ACH payment request. Then the merchant’s bank will debit the client’s account and the merchant’s account will be credited with the amount of money indicated in the ACH payment request.

At this point, the ACH network should send the ACH transaction to the client’s bank. After receiving the ACH form, if all required conditions are met, they will then debit their client’s account for the amount they owe the merchant.

If for some reason the client’s bank account alerts the ACH network that they are not able to complete the transaction, the money will remain in the client’s account. That’s an ACH return.

It costs money to process an ACH return, and that cost falls on the consumer. Similar to how consumers get charged a fee when they bounce a check, the consumer will need to pay a fee if an ACH return occurs. This banking fee is fairly small and typically only costs $2 to $5 per return.

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Recommended: Average Savings by Age

Important Terms to Know About ACH Returns

To better understand how ACH returns work, it’s helpful to know a bit of the industry’s vocabulary — particularly ODFI and RDFI (which are the two parties involved in every ACH return). Here’s what these acronyms mean:

•   ODFI (Originating Depository Financial Institution): The originator of the transaction who’ll send funds

•   RDFI (Receiving Depository Financial Institution): The receiver of the funds

Another facet of ACH lingo that’s helpful to know are ACH return codes. Any ACH return that occurs will generate an ACH return code. These ACH return codes are made up of the letter R followed by some numerals. Each code represents a different reason for a return. These codes can be helpful because they inform the originator of why the ACH return happened.

The following ACH return codes are fairly common:

•   R01 – Insufficient funds. This code means that the available assets can’t cover the debit entry (like when an account is overdrawn).

•   R02 – Account closed. In other words, the client or the RDFI closed the account that should be debited or credited through an ACH payment.

•   R03 – No account/unable to locate account. In this case, the return occurred because the account intended for ACH payment doesn’t exist or the account’s owner is not the one noted by the debit entry.

•   R04 – Invalid account number structure. If something is wrong with the client’s bank account number or the number doesn’t pass validation, a R04 return code results.

•   R05 – Unauthorized debit to a consumer account. If the receiver hasn’t authorized the originator to request an ACH transfer from their bank account, the transfer can be blocked. This ACH code will occur.

It’s worth noting that R05 return codes work a bit differently. Unlike the other ACH return codes listed, the return time frame for R05 is 60 banking days instead of two. This longer time frame gives the originator a chance to ask the receiver to allow the ACH transfer to occur or to provide them with a new bank account number to complete the transaction.

What Is the Difference Between a Notice of Change (NOC) And ACH Return?

It’s easy to confuse a Notice of Change (NOC) and an ACH return, but these are two different things. Let’s clarify the difference in these banking terms and processes. A Notice of Change, or NOC, is a method used by financial institutions to notify a federal agency to correct or change account information. It applies to an entry processed by the federal agency through the ACH. A NOC is not a form of payment in and of itself. Nor does it represent a failure to complete an ACH payment transaction. It’s a request for an edit, basically, while an ACH return actually stops a transaction.

Recommended: What is Liquid Net Worth

When Can You Request a Reversal of an ACH Payment?

For a reversal to occur on an ACH payment, certain requirements have to be met. Here are the guidelines for successfully putting the brakes on a transaction:

•   The reversal entry has to be transmitted to the bank within five banking days after the settlement date of the erroneous file.

•   Transmitting the reversing file has to occur within 24 hours of discovering the error.

If these criteria are met, the reversal of an ACH payment can proceed.

Why You Might Be Receiving an ACH Return

As you monitor your bank account, you may see that an ACH transaction, which usually happens so smoothly, is being returned. This can occur for a variety of reasons. For instance, the originator may have provided inaccurate payment information or may not have been authorized to debit the client’s account with an ACH payment. The codes reviewed above can also shed light on why the transfer of funds was stopped. By the way, both returned mobile ACH payments and returned ACH card payments can occur.

How to Return an ACH Payment

Returning an ACH payment involves simply stopping the payment from going through. This can happen in a couple of ways. Let’s say a bank can’t complete the transaction due to an error in the account number or the fact that the account was closed. Here’s what would likely happen:

1.    The client’s bank notifies the ACH network that they can’t complete the transaction.

2.    The money remains in the client’s account, and the originator will receive an ACH return code.

3.    The return gets processed, usually taking two bankings days.

Another way a return could happen is a customer could, say, decide to cancel an automatic bill payment. In this case, here’s how things would probably unfold:

1.    The customer would contact the business expecting payment and let them know they are ending the agreement and the company will no longer be able to access their account.

2.    The customer lets the bank know they are ending the autopay. How exactly this will be completed depends on the bank. It may need to be in writing.

3.    The request to end the autopay must be made at least three business days before a payment is due, to allow time for processing.

The Takeaway

While ACH payments are a super convenient payment method, sometimes a funds transfer fails to go through. In this situation, a returned ACH payment occurs. ACH returns can happen for a few reasons (such as the client’s bank account contains insufficient funds to complete the transfer). The entire process is fairly quick and is usually completed within two banking days. As more and more electronic transfers happen, it’s wise to be aware of this system that can step in if details are incorrect or one party can’t or won’t hold up their end of the arrangement.

Speaking of financial arrangements, take a moment to acquaint yourself with better banking at SoFi. We think you’ll be glad you did! With our linked Checking and Savings accounts, you’ll earn an amazing 1.25% APY when you sign up for direct deposit. Plus, you’ll pay zero account fees and have access to your paycheck up to 48 hours early.

Bank smarter with SoFi.

FAQ

What’s the time frame for an ACH debit return?

It usually takes two banking days for an ACH return to complete. However, there are select ACH return codes that result in a 60 banking-day return period.

How much are ACH return fees?

Fees vary, but they usually cost about $2 to $5 per return. The consumer pays this charge. It’s similar to paying a fee for a bounced check.

What are ACH return codes?

Every time an ACH return happens, the originator will be sent an ACH return code. This code is represented by the letter R and a two-figure number and explains why the return happened. For example, a R01 return code indicates that the client’s bank account contains insufficient funds to complete the transfer.

Can returned ACH payments be disputed?

Yes, ACH returns can be disputed. What that process looks like varies with the reason why the ACH return occurred. Every ACH return code has a specific return time frame associated with it. Only during that time frame can the client dispute the ACH return.


SoFi members with direct deposit can earn up to 1.25% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 0.70% APY on all account balances in their Checking and Savings accounts (including Vaults). Interest rates are variable and subject to change at any time. Rate of 1.25% APY is current as of 4/5/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Photo credit: iStock/Nicola Katie
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Business Cash Management Explained

Business Cash Management: Tips for Managing Cash

If you’re running a business, you probably know that managing cash is critical to your success — so let’s share some tips on doing that even better. Solid cash flow is vital to keep a business thriving, whether you’re a sole proprietor or the head of a larger enterprise. Even businesses with strong earnings can struggle with cash flow. That’s why cash flow can be a sure sign of how healthy a business is — or is not.

So let us help you optimize that cash flow. We’ll share some smart insights and helpful tips on:

•  What cash management for business is

•  Why it’s so important

•  Ways you can improve your business cash management

Let’s get started.

What is Business Cash Management?

Simply put, business cash management is basically the way you track and manage the money coming into and going out of your business – usually on a cash flow statement. Positive cash flow means more money is coming in through revenues or borrowing than is being used to pay expenses, such as payroll and rent.

That said, good cash management also means not having too much cash on hand. In that scenario, business owners, while cautious, may be missing out on future earnings growth when they neglect to invest cash back into the business.

Here’s another way to frame this principle: You can look at your business’ balance sheet. Check the ratio of current liquid assets to liabilities. A ratio that’s greater than one indicates good health (you’re not losing money), but if that ratio gets too high, you could be holding onto too much cash or other assets that could better be invested elsewhere.

The Importance of Cash Management for Businesses

Cash flow is the essence of all businesses. Without cash, a business will struggle to meet expenses, pay suppliers, repay any investors, and, often most importantly, grow the business through marketing and/or new opportunities.

Strong cash management strategies can also help a business avoid taking on debt. It can also give business owners more control over everyday activities, decisions, and growth opportunities. What’s more, smart cash management is the best way for owners to fulfill their vision for their enterprise while meeting both their short, intermediate and long-term needs. There’s certainly a lot riding on cash management, so let’s dive into ways to optimize it.

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6 Tips for Managing Cash Flow

Cash management can be especially challenging for entrepreneurs and small business owners. Yet it is one of the most important financial strategies business owners must master. These six tips can help.

1. Learning Your Cash Flow Cycle

A cash flow cycle is the time it takes to purchase your supplies and materials (or prepare the work that goes into providing a service), transform them into a product, sell your offering, and collect payment that can go into your business bank account. Sounds simple but a lot can go haywire during that process.

That’s why it’s important for business owners to constantly update and monitor their balance sheets and profit and loss statements. Ideally, you want to know at any given time what happened in the cash-flow cycle last month. Also important: Knowing your projections for what’s going to happen next month.

Understanding your cash flow cycle can help identify and address inconsistencies such as a late-paying customer or a build-up of inventory. If your business is seasonal or cyclical, you want to be well-prepared for both the intensely busy times…and the lulls.

2. Getting Payments on Time

Reminding customers to pay on time is one of the easiest but most necessary ways to manage cash flow. Late payments are a fact of life; common, even. Having receivables come in even a day or two past the due date can wreak havoc with your cash-flow cycle and your bank account.

Consider setting up email reminders to all customers ten days, seven days, and two days before payment is due. Technology today makes it a snap to pre-schedule email blasts. If the payment is still late or only a partial payment was made, don’t hesitate to follow up with a personal note or phone call.

This simple solution can really work. Customers will pay more attention to timely payments when they know you are paying close attention.

3. Turning Over Inventory Quickly

Having an abundance of inventory on hand at a given time means that a bundle of cash is tied up in that unsold stock. That could be an issue, because those funds might otherwise be working to pay for operations and expenses. What’s more, if all of that inventory bought upfront doesn’t sell as expected, it could mean losses on top of that lack of cash. That could hurt your growth and business valuation.

Many small business owners have learned that, in terms of cash, it’s better to turn inventory more quickly. Of course this will vary widely depending on your business – perhaps your product is handmade jewelry, perhaps its reconditioned air conditioners. But, just as an example, you might want to boost from inventory turning over from twice a year to five times. More targeted marketing could contribute to this acceleration.

That said, finding the right inventory management to fit with your cash flow cycles takes some time and experience. Recent supply chain issues have shown how challenging inventory management can be. Again, constant monitoring of the cash flow cycle can help guide how you tweak things.

4. Understand Invoice Financing

Let’s say you hit a cash management hitch. If you do find yourself in a position where you have too much inventory on hand and you need cash to cover expenses, there is a path forward. Invoice financing companies will advance a full or partial amount of your outstanding invoices. You repay that amount plus interest after the invoice is paid.

This likely should be considered only as a stop-gap measure. Like credit cards, interest payments on invoice financing can add up fast and quickly get out of control. Consider the fact that annual percentage rates for invoice financing products can reach as high as a jaw-dropping 64%.

5. Cutting Costs

Monitoring and cutting costs on expenses is another tool for managing cash flow. After all, if less cash goes to pay overhead, more can be invested in the business. A few suggestions: Relying on online marketing efforts that can be less costly than traditional methods, outsourcing tasks that take too much time and money in-house, and reducing energy costs. You might also want to renegotiate outdated contracts and prices with suppliers. These are all areas business owners can consistently monitor to keep costs low.

6. Comparing Loans

Sometimes, a business could use a helping hand to smooth out its cash flow. Let’s say you have outstanding accounts receivable — in other words, you know money is due but you don’t have it yet — and you need the cash now. In this situation, taking a business loan can be an option to help bridge the gap.

Cash-flow loans (like invoice financing explained above) are short-term loans or lines of credit. These are often used to cover expenses or to take advantage of opportunities that can increase revenue.

A working capital loan is another option that can be used to finance everyday business operations such as rent, payroll or restocking inventory. These loans are not designed to finance long-term assets or investment. Companies with seasonal or cyclical sales often rely on working capital loans to provide relief during slow periods.

One caveat: Working capital loans are often tied to your personal credit, so missed payments or defaults will affect your credit score. Consider that carefully before you sign on.

In addition, there are a variety of small business loans available that are used to finance long-term expenses such as real estate, equipment purchases or business expansion. These include SBA loans, business lines of credit, and term loans.

Whatever type of loan you choose, be sure to compare your options carefully. Look at terms, APR, and how much lending you qualify for among several lenders before taking on any short or long-term debt. Spending some time and energy on research will help ensure you get the right form of financing.

The Takeaway

Cash flow management is an essential part of running a successful business of any size. Carefully monitoring cash flow, then learning some simple strategies can maximize it. These moves can help ensure your business remains healthy and your future growth stays strong.

Personal cash management matters, too. At SoFi, we can help make that process more profitable and less time-consuming for you. Sign up for our online bank account with direct deposit, and you’ll enjoy 1.25% APY, which is 41 times the current average interest rate. Plus, we’re fee-free – no monthly or minimum balance charges, period.

Start improving your cash management today with SoFi.


Photo credit: iStock/AlexSecret

SoFi members with direct deposit can earn up to 1.25% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 0.70% APY on all account balances in their Checking and Savings accounts (including Vaults). Interest rates are variable and subject to change at any time. Rate of 1.25% APY is current as of 4/5/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Can an Immigrant Open a Bank Account?

Can an Immigrant Who Is Undocumented Open a Bank Account?

If you’re a fresh arrival to the United States, you’ll be glad to know that even if you’re undocumented, opening a bank account is possible. Which is very good news; after all, taking care of bills and everyday purchases is a lot easier — not to mention safer — when your cash is safely stashed in a checking account.

However, you will have to follow certain steps and perhaps a work-around or two. Probably the most important is that you’ll just need to provide an alternative for the Social Security number you don’t have. You may well find that a Tax Identification Number, or ITIN, along with the other required identification, can get the job done.

Let’s take a closer look at how an undocumented immigrant can open a bank account and the benefits of doing so.

What Do Immigrants Need to Open a Bank Account?


Like anyone else who opens a bank account, immigrants will need to provide and verify basic identifying information, such as their name and date of birth, using government-issued identification. This requirement may be met by a driver’s license, passport, birth certificate, or consular ID — and you’ll likely need to provide two different types of identification.

In addition, you’ll need to prove your residence. This can probably be done by presenting a utility bill, lease contract, or other official statement that includes your current address.

Finally, you’ll need either a Social Security number (SSN) or Tax Identification Number (ITIN). As an immigrant, the latter may be easier to obtain.

So, to recap, to open a bank account, you’ll want to check the eligibility requirements of the financial institution to which you’re applying, but you’ll probably need:

•  Official identification documentation

•  Proof of address

•  An SSN or ITIN

•  Anything else the bank might require (such as a minimum opening deposit)

What Is an ITIN?

We mentioned an ITIN as an option to an SSN above. You may wonder what exactly that is. Here’s the scoop: ITIN is short for Individual Taxpayer Identification Number. It’s an official form of identification that the IRS (Internal Revenue Service) issues to immigrants in order to make it possible to file taxes.

But your ITIN has other perks, too — such as allowing you to open a bank account with financial institutions that accept this form of identification instead of an SSN. These days, there are plenty of banks that fit that category, but you should always contact the bank you’re considering to verify that they’ll process an account application without an SSN.

Keep in mind, too, that you aren’t automatically issued an ITIN once you arrive in the U.S. In order to obtain one, you’ll need to apply for one with the IRS directly. You can do this by mail or in person.

Ready for a Better Banking Experience?

Open a SoFi Checking and Savings Account and start earning 1.25% APY on your cash!


How to Open a Bank Account With an ITIN Instead of a SSN

Here’s the good news: Once you have an ITIN, opening a bank account using it in place of an SSN should be a fairly straightforward process. You’ll simply supply that number instead of your SSN on that part of the application. If you apply online, the application process may take only a few minutes.

💡 Recommended: Can You Open a Bank Account Online?

The rest of the application will involve the bank gathering documentation, accepting your opening deposit, and issuing your bank account number and debit card. The process of establishing the account may take a couple of days. In addition, you may need to wait a week or more to receive your debit card in the mail.

And then, voila: You’re the proud owner of a U.S. bank account!

Benefits of Opening a Bank Account for Undocumented Immigrants

If you’ve been doing most of your financial transactions in cash for a while, you may wonder if going through the steps it takes to open a bank account is even worth it.

For many immigrants, it definitely is. A bank account makes it safer and easier to store and use your money. What’s more, it can also help you establish history and move toward legitimizing yourself as an American resident.

Personal Safety

Carrying cash is always risky. If you accidentally drop some (which can easily happen while you’re lugging bags in one hand and a coffee in the other), it’s gone forever. That’s not to mention the risk of others eyeing your cash. Paper money is liable to theft, and carrying large amounts of cash could even put you at risk of physical violence.

Having a checking account makes it possible to store larger amounts of money with a lower risk level. You’ll still be able to access cash when you need it using an ATM or your debit card. For these reasons, opening a bank account could increase your level of physical safety as an immigrant.

Establishing History

Opening a bank account shows people that you’re here on at least a semi-permanent basis, and may even help you establish state residency. While the process of naturalization is, of course, long and complex, having a bank account can be one small step toward legitimizing your status as a U.S. resident.

Ability to Save Money

Most banks offer both checking and savings accounts—the latter of which is an excellent vehicle for building up a rainy day fund. Having a separate savings account makes it a lot easier to put some money “out of sight, out of mind” so you’re prepared for an emergency. And, of course, it’s a lot more secure than stuffing cash into a coffee can or under the mattress.

Earning Interest

In addition to being physically safer, bank accounts also give you an edge against inflation. Here’s why: Many of them make it possible to earn interest on your balances—even on a checking account. The interest you earn might be pretty low, but it’s still better than no growth at all. Plus, it’s a low-risk investment given that money in a legitimate bank account is FDIC-insured up to $250,000.

The Takeaway

While it may take a few extra steps, it’s totally possible for an undocumented immigrant to open a bank account. You may just have to apply for an ITIN to use in place of your SSN, but once you get that taken care of, you’ll have access to a safe, potentially interest-earning place to stash your cash.

When shopping around for where you’d like to bank, may we suggest one option? SoFi Checking and Savings, which offers both kinds of accounts with no pesky monthly fees. If you set up direct deposit, you’ll earn 1.25% APY on your balances. (That’s at least 33 times the national average interest rate for a checking account, just in case you’re keeping score.)

Come see how simple and money-smart banking with SoFi can be.

FAQ

How do undocumented immigrants open a bank account?

An undocumented immigrant will need an alternative to the Social Security number, or SSN, in order to open a bank account. This number is called an Individual Taxpayer Identification Number, or ITIN, and you can apply for one through the RIS.

Can I open a bank account without an SSN or ITIN?

Unfortunately, you’ll likely need one or the other of these official, identifying numbers in order to open a bank account.

Can a U.S. citizen open a bank account abroad?

Yes, but it can be tricky. Many U.S. citizens have offshore bank accounts, though the process of applying for one may vary depending on which country you’re hoping to open an account in. It can involve a lot of paperwork, and starting this kind of account may have tax ramifications in both the U.S. and the foreign country in question.


Photo credit: iStock/Bilgehan Tuzcu

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi members with direct deposit can earn up to 1.25% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 0.70% APY on all account balances in their Checking and Savings accounts (including Vaults). Interest rates are variable and subject to change at any time. Rate of 1.25% APY is current as of 4/5/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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