Why to have a business account – and a 2nd business account too

If you operate as a sole trader, you might not have thought about opening a separate business bank account for the money coming in and going out of the professional side of your life.

After all, everything you earn is yours – so why would you have it paid into a separate account? And what does it matter if you pay for business expenses with your personal debit card, as long as you keep the receipts?

There are good reasons why a business account is still a good idea, even for sole traders, and it’s not just about making it easier to keep track of your business finances – it can also help to make sure your tax bill is accurate, and can be a lifesaver if you ever get audited by HMRC.

But why do some people say you should open not one business account, but two? And if you do that at the same time, what could it mean for your credit score?

Managing your money with a business account

First of all, a business account will typically give you plenty of ways to manage your money, including the usual ways to pay suppliers, including:

  • Faster Payments you can set up online.
  • Direct Debits you can manage online.
  • Debit card payments for online and in-store.
  • Pay using cash withdrawn from an ATM.

With an Arro Business Account you get all of those options, and the debit card you receive is a Business MasterCard® debit, so you look professional when you use it to pay for business expenses, and it’s easy to keep separate from your personal debit card too.

A decent business account will also have a proper UK sort code and account number – and again the Arro Business Account has this, so you can receive payment of invoices directly via bank transfers and online payments.

You might think that sounds like one account has everything covered, so why do people suggest opening a second business account?

How a 2nd business bank account can help

In your personal life you might have a current account and a savings account – and in business you can have the same when you open a second business bank account, or an equivalent online business account like the Arro Business Account.

This gives you somewhere to store funds that are not available to spend, so that your primary business account balance is entirely available to cover bills and other outgoings, as well as petty cash purchases using your Business MasterCard® debit card.

One obvious use for this is to siphon off a portion of your earnings and keep it separate and untouched ready to pay your tax bill at the end of the year.

In fact you could go even further – and have an account for everyday business income and expenditure, one to set aside long-term savings for big purchases or expansion plans, and a third to keep the correct amount of tax set aside until it is time to pay.

With Arro Business Accounts you can set up standing orders to make regular payments across from one account to another – so you can automate the action of diverting funds into your ‘tax savings’ account, and from there set up a standing order to pay it across in monthly instalments to HMRC, if you wish.

What about my credit score?

If you apply for a business bank account on the high street as a sole trader, the bank is likely to run a credit check to decide whether or not to approve your application, especially if it comes with an overdraft facility.

You might not be able to open several business bank accounts with the same bank – and if you apply for multiple accounts with different banks, that can lead to a lot of credit checks on your file in a short amount of time.

The problem with that is that it is the kind of pattern seen when someone is trying to get credit to tackle their debt problem, and can trigger a drop in your credit score.

Because Arro Business Accounts don’t have an overdraft, credit card or loan facility, there’s no credit check required – you can even get approved if you have a bad credit rating due to past applications elsewhere.

This means even if you open multiple accounts in a short space of time, your credit score will not take a hit – allowing you to manage your business finances the way you want, without paying the price.