5 MinsApr 12, 2021
Vinay Pawar is a graphic designer who has recently started his own business. It is picking up and he is keen to expand it fast. Since he is working alone and without any partners, he thought he could receive payments into his savings account. However, a quick conversation with his relationship manager at Axis Bank changed his views.
RM (Relationship Manager): Why do you want to accept business payments into your savings account?
VP (Vinay Pawar): It’s easier for me. I don’t have to open a separate account and can keep track of all my payments.
RM: Actually, it's challenging to keep track of your payments in a savings account. Financial transactions for your business and personal life will get mixed up. Even a sole proprietorship should always have a current account that will make it easy for you to separate business from individual transactions. This will help in your income tax planning as well.
VP: But if I understand it correctly, under the Income Tax Act, a sole proprietor and his or her business are the same taxable entities. Why bother with a current account, then?
RM: A current account lets you perform unlimited transactions without any restrictions, unlike a savings account. A savings account has limited transactions, after which you will be charged a fee.
VP: Yeah, I didn’t think of that.
RM: Are your clients going to pay you in cash or via online transfers?
VP: Both, I guess.
RM: Online banking is pretty prevalent now. Current accounts offer you numerous benefits that help you increase efficiency and transparency. You can use NEFT, RTGS and IMPS to receive and make payments. You can also link UPI to your current accounts. It will make things easier for you. And if you get paid in cash, you can make multiple cash deposits, unlike savings accounts that limit the number of cash deposits. The limit for cash deposits in current accounts is also higher. You can deposit cash in any bank branch of your bank.
VP: That’s interesting.
RM: Yeah, many people who are used to getting salaries are often unaware of current account benefits. Do you know you can also avail of an overdraft with a current account?
[Also Read: A Current Account for the Digital Age]
VP: No, I didn't. Can you explain it?
RM: An overdraft facility is like a short duration loan. Think of it as a line of credit. Assume for a minute that you have to make a payment to one of your vendors to complete an assignment, and the client will pay you only after the final product is delivered. Now, even if you don't have the required balance in your current account, you can draw on the overdraft facility, make your payments and send the completed project to your client. Once the monies from the client come into your account, the overdraft is adjusted. You will only be charged a small amount of interest on the overdrawn account. Use it judiciously, and an overdraft is a great way to further your business and get over temporary cash flow issues.
VP: That's cool, but I don't think I will use that.
RM: You may not use that now because you have just started. However, as your business grows, you might need it in the future. Building a good relationship with your bank through your current account might help you get a higher overdraft facility. You have to think about the future as well.
VP: Yeah, you are correct. I didn’t think about the relationship part with the bank.
RM: There is one more aspect of a current account. In a sense, it signifies to the broader world that you are "serious" about your business and growing it. As you scale up and start dealing with larger corporates as clients, you might find that many of them are not very comfortable if you don't have a current account. You might even lose out on such clients.
To sum up, here are the top six benefits of a current account
a. Differentiate between personal and business finances.
b. Unlimited transactions
c. Overdraft facility.
d. Multiple cash deposits and withdrawals.
e. Multi-city deposits and withdrawals.
f. Giving your business a more “serious and stable” image
VP: Thanks a lot for taking the time out for this. It cleared up a lot of queries.
Axis Bank offers a range of current accounts designed to meet all its business customers' requirements – from sole proprietorship firms to large companies. Axis Bank now also provides digital savings account and digital current account opening with video KYC.
Disclaimer: The Source, a Mumbai-based content creation and curation firm, has authored this article. Axis Bank does not influence the views of the author in any way. Axis Bank and The Source shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.