What is a business bank account?
A business bank account is a type of transaction account you can use for all the financial affairs of your business, as opposed to an account that's for your personal use.
Does a business need a separate bank account?
If you're a sole trader, there is no legal requirement for you to have a separate bank account for your business. Only companies, partnerships and trusts are required to have a business account.
However, if you own a company, it's recommended that you maintain a separate bank account for your business.
Benefits of a business bank account
Makes meeting your tax requirements easier
Keeping your personal and business banking details separate makes it easier to work out your tax obligations, and any business-related claimable expenses.
Improves the credibility of your business
Having accounts set up under the name of your company, rather than your personal name, improves the credibility of your business.
Makes book-keeping easier
Dedicated business accounts can be linked to business accounting software, such as Xero. And they make it easier for an accountant to manage your books and track the financial performance of your business.
Facilitates the growth of your business
If you plan to grow your business, any perspective lender or investor will want to see a clear, separate history of its finances.
How to find the best business bank account
Finding the best business bank account means finding one that best suits the needs of you and your business.
Several banks in New Zealand offer business bank accounts, and each offers similar services, fees and charges. But there are differences between banks and accounts, so you need to find the ones that could work for you.
You can refer to Canstar's Business Banking Awards to help fine-tune your search. The awards recognise those institutions that provide outstanding value to small business owners in New Zealand through their suite of business banking products and services. To identify the award winners, each eligible provider is assessed using Canstar's sophisticated methodology.
Other things to consider when choosing a business bank account, include:
Fees & charges
What charges and costs apply to the everyday running of the accounts, for example overdraft costs, transaction charges and interest rates.
Availability of accessing and processing cash
If your business uses cash, it's important to assess what cash-handling options are provided by the bank, and if extra charges apply.
Online and digital banking
Does the bank offer a user-friendly suite of digital banking services and payment options.
Foreign currency transactions
If your business makes overseas transactions, what foreign currency exchange services does the bank provide, and at what cost?
Support services
Does the bank have experts available to provide specialist assistance to help you manage and grow your business? This could include help with asset and property purchases, insurance products, investment advice and financial planning.
How to apply for a business bank account?
Once you've decided on which bank suits your business banking needs, then it's fairly easy to set up an account.
Check with your chosen bank to see what they require, but you will usually need proof of identity, such as your birth certificate, driver licence or passport. You will also need to provide you business details and your IRD number.
Some banks offer an initial online application, although you may have to visit a branch to finalise setting up the account. If you want other people named on the account, they may also need to attend a branch.
In regards to all legally binding documents, before signing anything, you should take care to read any relevant documents, including any terms and conditions, and seek professional advice if you're unsure about any aspects of the contract.
What is a business credit card?
Business credit cards are like regular credit cards, and they're usually used by:
- Business owners who want to separate their business expenses from their personal spending. In this scenario, the business owner has a credit card in their business name, as well as a personal credit card. The business card is used for company expenses, and business funds are used for repayments, simplifying financial record-keeping.
- Companies that want to provide a way for employees to pay for business-related expenses, without the employee having to dip into their personal funds and claim those expenses back later from the company. Usually the employer issuing the card has a set of rules around what can be charged to the card. For example, a company may allow an employee to pay for client entertainment expenses on their card, but require receipts and details of the event as evidence that the expense was justified.
What to look for in a business credit card
Business credit cards come in two distinct types:
Business low-rate card
A low-rate business credit card offers, as its name suggests, a low rate of interest, which is also often accompanied by a low annual fee.
A low-rate option is suitable for a business that revolves debt on the card from month to month.
Business rewards card
A rewards business credit card offers a rewards program. Rewards differ, but usually encompass: cash-backs, gift cards/shopping vouchers, frequent flyer rewards, merchandise, entertainment or lifestyle rewards.
A rewards option is suited to a business that can use the rewards program to its advantage. This involves putting a high volume of transactions through the card each month, and always paying off the balance, so not to incur the higher interest rates associated with rewards programs.
Rewards cards also usually have higher annual fees. So if the card isn't used very often, it's not a good option, as a business can end up paying more in fees than it earns in rewards.
What makes a good business credit card?
Generally speaking, the key features of a business credit card are its:
- Annual account fee
- Accessibility
- Additional costs, including overdrawn and late fees
- Interest rate
- Rewards scheme
Other features businesses should take into consideration include:
- Fees associated with additional cards
- Interest free days, the date interest is calculated and the grace period before interest is charged
- Insurances against losses, theft and for travel
- Introductory interest rate offers
- Maximum credit limits
- Security protections
- The maximum number of cards available on one account
How to find the best business credit card
There is no one-size-fits-all solution to finding the best credit card for your business. The size and performance of your business will dictate your credit card requirements.
But across the two main types of business credit cards:
- A small business with a large monthly credit card expenditure and no need for credit card debt can benefit from a rewards program.
- Businesses with a revolving debt may benefit from a card with a lower interest rate.
Things to consider when choosing a business credit card, include:
How you plan to use the card
If you're likely to roll over a balance month to month, you may consider a business credit card with a low interest rate and fees. However, if you're likely to pay off the balance in full each month, then consider a card with a high number of interest-free days and a low annual fee, or a rewards card.
The card's interest rates and fees
It's important to consider the card's interest rates, such as its purchase, cash advance, balance transfer and foreign currency conversion rates. Also check its other fees, including annual charges, those for cash advances, international transactions and foreign currency conversions and any late repayment penalties.
Spending limit
A business credit card generally comes with a credit limit, which is the maximum amount you can spend on the card before making a repayment.
Interest-free days
Interest-free days refer to the billing period of the card, and the number of days from the beginning of the cycle before you have to make a repayment on the outstanding balance. Cards typically offer between 44-55 interest free days. If you don't pay off your bill in full each month, you will start paying interest on each outstanding item bought on the card from its date of purchase.
Other card features
Some business credit cards offer features such as data and software integration to help with reporting, employee card spending controls and limits, security and account monitoring tools and the ability to add additional cardholders, either free of charge or for a fee.
Balance transfers
When transferring an existing balance from one business credit card to another, you’ll generally need to pay a balance transfer fee. This is usually charged as a percentage of the balance transferred. Many balance transfer credit cards will offer a 0% or low interest rate for a certain amount of time before reverting to a higher interest rate (e.g., 4.99% for 12 months and then 20.24% after).
Complimentary insurance
Many credit cards offer complimentary insurance cover. This can include for items bought on the card, or travel insurance, if the card is used to make the booking. If you travel overseas regularly, it's worth considering cards that offer such benefits.
Pros and cons of business credit cards
Potential pros:
- Gives you access to a line of credit, meaning you can access funds that you then pay off over time. This can assist with a business' cash flow.
- Can keep your business-related spending separate from your personal expenses. Some business credit card products may also offer more detailed statements and integration into accounting software.
- Depending on the card, you may be able to earn rewards or frequent flyer points with each dollar you spend on certain purchases. Such rewards cards may also offer complimentary insurances and airport lounge access.
Potential cons:
- If you carry a balance month to month, you’ll be charged interest. These interest charges could affect your business’ bottom line.
- Most credit cards charge an annual fee. These fees can be higher on business rewards and frequent flyer credit cards.
- Business credit cards often have higher minimum income and/or annual business turnover requirements. They may also require your business to have been active for a certain amount of time (e.g., 12 months).
