A current account is normally opened by business entities in order to carry out their banking transactions. A zero interest account, the current account is generally associated with businesses which have huge and frequent number of transactions. However, a current account can be useful for other entities as well.
Normally it is seen that sole proprietors, freelancers and other people who work on their own use their personal savings bank account for business transactions. A current account is usually not opted for, as one feels that opening a current account is cumbersome and elaborate. Having a current account for such people is not compulsory as well. Therefore, the natural tendency for most people would be to issue their savings bank cheques or deposit the amount earned from business transactions in their personal accounts. This practice is not only financially unsound, but can also deprive you of benefits associated with a current account. Here are some such advantages of a current account:
Segregate business finance from personal finance: A freelancer or a sole proprietor is not a separate legal entity who is different from his business, unlike a company. This does not mean that bank accounts should also be the same. By opening a separate current account in which business income and expenses are recorded helps in bringing about a distinction of what pertains to the business and what pertains to the personal finance of the proprietor. This not only helps in better financial planning on the personal front, but also helps in giving an exact picture about the business at any point in time. In some cases, when all the transactions are carried out in a single personal account, the proprietor may not be able to recognize that his business is running at a loss if his personal finances are healthy. A segregation of business finance from personal finance is critical, and this is enabled by having a current account.
Professionalism in business: While dealing with business acquaintances, it is very important to maintain professionalism. This helps in enhancing your image and also in the growth of the business. A current account in the name of your business is an important factor in achieving this. This is because the cheques you issue and receive will carry the name of your current account. Having a current account signifies your seriousness in carrying out the business.
Ability to prove credit worthiness: Sometimes, your creditors and other lenders would want to check your credit worthiness before advancing credit to you. Operating a current account can help in facilitating this process. You could give them a letter issued by your bank stating that you hold a current account. Alternately, the credit worthiness can also be checked using inter bank connections. Sometimes, if you are into export/import, there is a need to issue guarantee/letter of credit to foreign counter parties. Having a current account with a reputed bank helps in easing this process as well, thus helping in establishing your credit worthiness.
Overdraft facility: Another important benefit of having a current account is that one can easily avail overdraft facilities when needed. This means, the account holder can overdraw the balance in his account on a temporary basis, to plug the shortfall in funds. This is like a short term borrowing, on which the bank may or may not levy interest. A normal savings bank account does not have the facility of overdraft. A current account can therefore help in meeting your short term need for money.
Ease in banking transactions: A current account by its very nature offers added benefits when compared to a personal savings bank account. With increasing competition, banks are now ready to offer value added services at no extra cost to current account holders. Banks prefer opening current accounts, as this account does not pay the account holder any interest. As a result, features like 24 hours phone banking, door step banking, internet banking and mobile alert services come inbuilt in most current account kits. In addition, the account holder can also enjoy a certain number of free pay orders / demand drafts and the facility to transfer funds instantly using NEFT/RTGS etc. Some banks offer a zero balance account as well, wherein there is no need to maintain a minimum balance. Free inward remittances, deposits and withdrawals at any location, multi location transfer, periodical statements and personal relationship managers to cater to your requirements are other services offered. While most of these services are also available in savings account, it may require you to maintain a certain balance in your personal account. A current account helps in easy and quick banking transactions, which becomes very important while running a business.