SME Matters: Why SMEs in Singapore Should Consider Having Multiple Business Bank Accounts

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Feb 06, 2024

Why SMEs in Singapore Should Consider Having Multiple Business Bank Accounts

Introduction

For small and medium-sized enterprises (SMEs), financial management is crucial for their survival and growth. Effective financial management can help SMEs to better manage cash flows, reduce costs, and increase profits. One way SMEs can achieve this is by using multiple bank accounts.

Benefits of Using Multiple Bank Accounts

There are numerous benefits to having multiple bank accounts for SMEs. One of the most significant benefits is the ability to segregate funds for different purposes. For example, SMEs can have one account for payroll, one for supplier payments, and one for investments. This can help SMEs to better manage their cash flows and ensure that funds are used for their intended purposes.

Another benefit of using multiple bank accounts is that it can make it easier to reconcile financial transactions. By having separate accounts for different purposes, SMEs can more easily track their income and expenses, which can help them to better understand their financial position and make informed decisions.

Usage of different bank accounts for different purposes mean more benefits to business owners.

Better organization and tracking of finances:

Separating funds into different accounts allows for easier tracking of expenses and income. For example, having a separate account for payroll can help ensure that all employee payments, international payments, payment to customers, etc. (i.e. bulk payments) are recorded accurately and efficiently.

Improved cash flow management:

By allocating funds to different accounts, it becomes easier to manage cash flow and ensure that bills and other financial obligations are always paid on time. For instance, having a separate savings account for emergency funds can help businesses stay afloat during unexpected downturns.

Higher interest rates and better returns:

Depending on the type of account, having multiple bank accounts based on your real business type can allow for higher interest rates and better returns on your capital For example, a digital bank account might offer a higher interest rate than a traditional bank account.

Read also: Which Digital Bank Account Is Most Valued For Buck For SMEs? ANEXT Bank Vs GLDB Vs MariBank

Protection against fraud and theft:

By separating business funds into different accounts, it becomes more challenging for fraudsters and hackers to access all funds at once. For instance, having a separate account for online transactions or instant fund transfer can help protect against cyber threats.

In summary, having multiple business bank accounts for different purposes can help SMEs better manage their finances, improve cash flow, earn higher returns, and protect against fraud and theft.

Tips for Choosing the Right Bank Accounts and Managing Them Effectively

When it comes to choosing the right bank accounts, SMEs should consider factors such as fall-below fees, interest rates, and ease of use. For example, SMEs should look for accounts that offer low fees and high-interest bearing rates. They should also consider the ease of use of the accounts, such as whether they can be easily accessed online or through a mobile app within single dashboard.

In terms of managing multiple accounts effectively, SMEs should consider using accounting software such as Xero. This can help them to better track their finances and reconcile transactions. SMEs should also ensure that they have strong internal controls in place, such as segregating duties and regularly reviewing financial statements.

Common Mistakes to Avoid

When using multiple accounts, it is important for SMEs to avoid common mistakes. For example, they should not mix personal and business funds in the same account. They should also avoid over-drafting their accounts, as this can lead to fees or other penalties. Finally, SMEs should ensure that they keep track of all account activity, including huge deposits and withdrawals, to ensure that they are accurate.

Question You Need To Ask Yourself Before Choosing A Business Bank Account

What Stage Of Your Company You Are In Now?

The stage of your company significantly influences the choice of a business bank account. For startups with limited funds, opting for a business account with little or no initial deposit and minimal maintenance fees can help capitalize on the available funds, avoiding fall-below fees common in traditional banks.

Established companies requiring robust customer service support may prefer traditional banks with branch presence, catering to their day-to-day operational needs. The selection of the appropriate business account aligns with the specific financial needs and operational requirements at different stages of a company's growth.

Compare Interest Bearing Rates: Digital banks offer interest-bearing accounts while traditional banks tend to only give out interest for a higher deposit and maintenance amount.

Consider Convenience: This includes looking for a bank that has branches and ATMs in your area, allowing easy access to banking facilities. Additionally, you may want to research banks that offer online banking, mobile banking, and other convenient features may be beneficial.

Pay Attention to Min Balance requirement and initial deposit: You can avoid potential fees and optimize your account usage. Low initial deposit requirements allow you to initiate your digital banking journey on the right footing.

Ease Of Web/Mobile interface Usage: Certain banks prioritize user-friendly online interfaces, ensuring a seamless and intuitive experience for customers. These institutions emphasize simplicity, clarity, and efficient navigation in their mobile apps and web platforms.

SDIC Deposit Insurance: With the rise of neobanks like Aspire, Wise, Youtrip, etc one question SMEs owner need to ask themselves is if their deposit are covered compared to Traditional and Digital Banks which are SDIC insured of up to $100,000 from April 2024.

Other Facility Support: Business owners should also consider the availability of additional business banking facilities offered by their preferred banks. Typically, having the main operating account with a bank may increase the likelihood of obtaining business loans or credit facilities, as banks often prioritize existing customers. This synergy between the primary operating account and other financial services can play a crucial role in facilitating a comprehensive and integrated financial strategy for business owners.

Conclusion

Having multiple dedicated business bank accounts can be incredibly beneficial to SMEs in Singapore. It can help them save money by taking advantage of higher interest rates and low fees, while also providing a more organized way of managing their finances. However, SMEs should be sure to understand the fine print and carefully consider the pros and cons of each account before making any decisions. They should also ensure that they have strong internal controls in place to prevent mistakes or fraud.

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