Cash management is the process of monitoring, analysing, and controlling cash flow. The aim of cash management is to ensure that the entity has enough cash to meet all obligations. 

Cash management for businesses involves optimizing cash and other liquid assets, investing in the right channels and minimizing operational and overhead costs. 

It is multidimensional and complex, involving multiple stakeholders, timelines and large amounts of money. Today, with solutions like RazorpayX Business Banking+, businesses can harness the power of automation and technology to make cash management efficient and accurate.

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Effective cash management is crucial for businesses as it ensures sufficient liquidity to meet daily operational needs, pay bills, and invest in growth opportunities.

Ensuring sound cash management practices is the best way to ensure financial stability and make strategic decisions for growth. Fintech solutions today have automated, tech-first offerings that make banking for businesses easier than ever.

RazorpayX offers modern-age banking solutions to entrepreneurs for better financial management. Current accounts powered by RazorpayX are designed with a smart dashboard, offering a clear picture of the cash inflows and outflows.

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Cash Management Services

How Does Cash Management Work? 

Cash management is the day-to-day monitoring of inflows and outflows of cash. Cash is one of the most important assets anybody can own, and good management of cash and cash equivalents can significantly improve the liquidity and financial situation of the entity.

Corporate cash management is the management of cash assets for a business. Corporate cash management involves a CFO, finance analysts, business managers, etc. They analyse and track several metrics to ensure the cash management strategy and stability is well-maintained.

Importance of Cash Flow Statement in Cash Flow Management

Cash flow statement is very important in creating a cash flow management plan for businesses. Cash flow statement records all the cash flows of a business, including:

• Cash flow from investing
• Cash flow from financing
• Cash from accounts receivables
• Cash for accounts payables

The bottom line of a cash flow statement shows how much cash the business has. It can be negative if there is more outflow than inflow.

Cash flow statement is a key tool in creating a cash flow management plan since it gives the current cash flow performance of the business as a baseline to improve on.

It is broken into three parts – Investing, Financing and Operating. Investing involves allocating resources to long-term assets and projects that will generate future returns. Financing focuses on obtaining and managing the funds needed to support the company’s operations and growth. Operating pertains to the day-to-day activities required to run the business and generate revenue.

Cash Management Services

Banks and other financial institutions offer cash management services to companies in the form of vendor payments management, payroll management, payouts management, etc.

RazorpayX Business Banking+ helps businesses centralize their cash management by streamlining disbursements, payroll, vendor management etc. RazorpayX’s cash management services help companies optimise their available cash and invest excess cash for better returns.

Here a few of the services RazorpayX Business Banking+ offers:

• Bulk and automated payout management system
• Best in class vendor and invoice management
• Digital-first current account with granular access controls and self-serve approval workflows
• Payroll management system with RazorpayX Payroll

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What are the 4 Types of Cash Management?

• Cash Flow from Operating Activities 

In this type of cash management, the cash flow statement shows the cash records that come from the regular activities of the business on a day-to-day basis. It excludes cash flows from investing activities. 

• Free Cash Flow to Equity

The free cash flow to equity is the cash reserve that is left after the reinvestment of the capital. 

• Free Cash Flow to the Company 

The free cash flow to a company is the amount of cash derived from operations and is calculated after the payment of depreciation, expenses, and taxes. This is primarily used for financial valuation and determines a company’s profitability. 

• Net Change in Cash 

This shows the overall change in cash flow from one accounting year to another. 

What are the Functions of Cash Management?

• Inventory Management 

Inventory management ensures to clear the blockage of any trapped sales which leads to the higher stock-in-hand. As increased stocks in inventory indicate decreased levels of liquidity, by effective fund management, companies can aim to clear out existing stocks which will ensure inflows of cash. 

• Receivables Management 

Generally, after a credit sale, a company records an entry of sale; however, the payment of the same is often in the pending status. Cash management plays the function of effectively paying all the bills receivables to remove any shortage of liquid cash. 

• Payables Management 

Payables are the company’s liability when purchasing any items on credit. Sometimes organisations obtain loads from lending institutions or banks and are liable to repay within a stipulated time. Hence, effective fund management ensures that the repayment is made on time, avoiding any penalties or compensatory interest. 

• Short-Term Investment 

The primary essence of cash management revolves around factors like avoidance of cash crunch and insolvency. Moreover, this can also be used to invest in shorter-term instruments like government securities to increase the value of money.  

What are the Objectives of Cash Management? 

• Cash Flow Management 

The primary objective of cash management is controlling cash inflows and outflows. Most importantly, this approach ensures a lower fund outflow and enhances inflow, promoting an optimistic financial position of a company. Cash management identifies all the sources of cash outflows and adopts measures to restrict them; thereby reducing operational expenses. 

• Effective Planning of Future Funds 

It optimises cash in a way that makes future cash reserves meet short-term obligations. This also assists in planning better capital expenditure and assessing financial ratios of debt and equity. In other words, with effective planning the company will also have sufficient reserves of liquid cash for catering to any unforeseen expenses. 

• Meet the Requirement of Unexpected Expenses 

One of the primary objectives of keeping enough liquid cash through effective cash management is catering to unexpected expenses. This may include the breakdown of machinery or any other uncalled occurrence for which the company should not fall out of surplus cash. 

• Avoid Insolvency 

Ineffective cash management may result in a shortage of funds which may result in failure in bill payment. This, in turn, may lead to insolvency and demolish the goodwill of that organisation. 

7 Ways to Improve Cash Management 

• Lower the credit period by managing receivables through optimization of the billing and collection process. 

• Enhance the cash inflows by entering into lucrative negotiations with the suppliers.

• Curtail traditional payment processes and incorporate different online payment systems. 

• Carry periodic reviews and update cash management processes and policies to ensure their effectiveness. 

• Schedule regular auditing of cash management to allocate areas of improvement and adhere to all the necessary compliances. 

• Reduce cash outflows by locating unnecessary expenses and monitoring them.
• Incorporate better cash management tactics to make the cash balances and transactions visible. 

Top 5 Cash Management Strategies 

• Budgeting and Forecasting 

Budgeting and forecasting is a cash management strategy where a company forecasts the different sources of cash inflows. Based on this forecasting the accounts department creates a budget which is used to manage operations and meet any potential shortfalls. 

• Negotiating Favourable Terms of Payment 

During entering into a contract, the business needs to negotiate terms of payment for better management of cash flows into the company. Moreover, establishing proper strategies like if customers make an early payment, they will get some percentage of discounts. 

• Establishing Better Collection and Billing Methods

Incorporating the best collection and billing method in a company is an optimistic way of cash management. Simpler and hassle-free processes like online payment gateways will be incorporated, which will lead to ease in paying the credit. 

• Lowering Expenses 

Being one of the most essential cash management strategies, companies need to identify unnecessary expenses and reduce them to conserve cash. For example, implementing different cost-cutting policies and entering into better negotiations with the clients can control expenses to a significant level. 

• Keeping Sufficient Cash Reserves 

Maintaining an additional stash of sufficient cash can save you from unexpected expenses and emergencies. Moreover, these cash reserves can be used for the compensation needed to pay for any unfortunate events. 

Important Terms in Cash Management

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FAQs

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It links a bank account and a fixed deposit in such a way that any time your savings account balance exceeds a certain amount, the extra money is swept into a fixed deposit account.

Let’s dive into this tell-all piece about the auto sweep, simplify some jargon, and learn how this facility works for you.

Read more: Business Account Checklist: Meaning, Types and Features

What is Auto Sweep Facility?

Auto sweep facility allows account holders to move surplus funds from a savings account to a Fixed Deposit, and access these funds at any time without any lock-in period or penalties.

When the balance in your account falls below the stipulated threshold, the amount of the shortfall flows back into your account. This is called sweep-in.

This process of sweeping the money into or out of your account happens at the end of each working day – ensuring that the optimum balance is maintained in your account. At the same time, all your excess cash gets the highest return from a safe fixed deposit.

How Does the Auto Sweep Facility Work?

Auto sweep facility needs to be enabled on your savings account. Once enabled, you will need to specify a threshold limit. When the balance in your account exceeds this threshold the surplus will be automatically transferred to a FD account. This is called a sweep-in. 

The auto sweep facility does not affect your liquidity. If you try to make a transaction valued higher than your specified threshold, funds will be swept-out from your FD back into your savings account for your use.

In this way, you can earn interest on your money in both the FD and savings accounts.

How to Activate Auto Sweep Facility?

You can activate auto sweep facility both online and in-person. Before raising the request, make sure you have planned your threshold limit and budgets well.

For online activation, login to your mobile app or your internet banking portal.

You may also speak to customer service agents of your bank of choice. Once the service request is raised, it may take up to 1-2 days for the facility to get activated on your savings account.

For an in-person process, you can visit the nearest bank branch and raise a request for auto sweep facility to be enabled.

Auto Sweep Jargon Explained

Here are a few terms you should be familiar with before availing of the auto sweep facility:

• FD tenure/period: It is the duration of the fixed deposit, that is, the time for which the FD has been created. Banks might offer only a 1-year deposit as part of the auto sweep facility. Some banks, however, provide a flexible tenure for Fixed Deposits.
• LIFO/FIFO: The excess amount swept out of your account is invested in FD units, each of them typically broken into small denominations. The bank may follow the FIFO (First In First Out) method or the LIFO (Last In First Out) method to liquidate FD units to maintain the stipulated balance in your account.In the LIFO system, the bank will liquidate the FD units invested in which you invested most recently, and the amount will be transferred to your account. The bank will liquidate the FD units created the earliest in the FIFO system.
• Pre-closure penalty: The penalty charged for withdrawing from a Fixed Deposit before its term has expired.

Benefits of Auto Sweep Facility

Whether you are a business owner using a current account or a salaried individual using a savings account, there are benefits aplenty to enabling the auto sweep facility.

1. Higher FD Rates

The main reason to opt for the auto sweep facility is to earn interest on money in your account. To get a better understanding of your expected earnings, you could even use an FD interest calculator.

2. Liquidity

The sweep facility enables you to have ample liquidity while ensuring a good return on your funds. Say you have an EMI pending or a cheque due and are running low on funds in your sweep current account. Your bank will automatically transfer the funds from the amount invested earlier to your account to ensure timely payment of the EMI or the cheque, saving you time and effort.

3. Flexibility

Banks generally let you choose the period of the deposit, the maturity, and the threshold amount. There may, however, be a minimum holding period for FDs, and premature withdrawal may lead to loss of interest.

4. Linking Multiple Deposits

You can link multiple deposits to the current account for sweep-in to ensure you never have a liquidity crunch. In such cases, banks usually apply the LIFO (Last in First Out) rule, which means that,  when a sweep-in is triggered,  funds will be transferred to your account from the latest deposit linked to the sweep-in facility.

5. Separate Corpus

Apart from the higher interest rate, the sweep-in facility helps you create a corpus that you can access in an emergency, without having to liquidate any other asset.

[Read more: Differences Between a Current Account and a Savings Account]

Taxes on Auto Sweep Facility

Interest earned on savings account where auto sweep facility is enabled is categorised as ordinary income and TDS of 10% is deducted if the interest exceeds Rs 10,000 in a year.

The FD account linked through the auto sweep facility will also provide interest – this is taxable as income from other sources, where TDS is not auto-deducted but will have to be declared in income tax returns.

The tax implications of auto sweep facility can be complicated, so it is important to consult with a tax advisor to understand your specific situation.

Summing up

If you want to save money, maintain a robust balance in your current or savings account and stay on top of your finances without having to tinker with your bank account every single day, then the auto sweep facility is the way to go.

Read more: RBI on Auto Sweep Facility

Automated Banking and Finance Management

The auto sweep facility is only one example of how automation is a game changer for finance. If you can’t make computers do your work for you, what’s the point of living in the 21st century?

RazorpayX is a business banking suite that offers automations, integrations and more so you can bank like the future.

• Cut manual effort and mistakes with automated payouts, taxes and more
• A current account now directly integrated with your favourite accounting software
• Smart bulk payouts so you don’t have to worry about any missed payments
• Vendor management, payroll management – all in one place
• AI-driven financial insights with RazorpayX smart dashboard

Frequently Asked Questions

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A payout is an outflow of cash in a business. Business payouts can take many forms, depending on the nature of the transaction and the entities involved, such as direct bank transfers, digital wallets or checks. Some payouts include salary or wage disbursals to employees, refunds to customers, dividends to shareholders, etc. 

Poorly managed payouts can lead to suspicious cash flows, strained relationships, and even legal issues. Traditionally, payouts were made manually in the form of cheques or cash transfers, with bulky paper-based processing or complex spreadsheets. 

Today, payout service providers like RazorpayX Business Banking+ allow businesses to make and manage payouts to any stakeholder in seconds. Solutions like API payouts, bulk payouts, and automated payouts have changed the way businesses handle payouts.

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Types of Payouts

• Domestic/Local Payouts

A local payout is made within the country or region from which the payment originates. It is made using local payment processors or banks. Local payouts are almost instant and involve lower transaction fees and better success rates. This method is commonly used for wage and stipend payments or small petty cash expenses.

For international, recurring or big-ticket payouts, businesses generally use other forms like payouts like API, bulk or recurring payouts.

• Vendor Payouts

Vendor payouts are payments made to suppliers for goods or services rendered. These payouts are the lifeblood of the supply chain, ensuring that the business has the necessary resources to operate efficiently. In industries with complex supply chains, such as manufacturing or retail, timely vendor payouts are critical.

Delays in payments can disrupt the supply chain, lead to stock shortages, and damage relationships with key suppliers.

Modern businesses can benefit significantly from automating vendor payouts through accounts payable software that integrates with their Enterprise Resource Planning (ERP) systems. This ensures that payments are made on time, invoices are matched accurately, and any discrepancies are flagged for review, thereby reducing the risk of errors and fraud.

• Employee Payouts 

Employee payouts encompass salaries, bonuses, leave encashment, full and final settlements, and other forms of compensation. For business leaders, ensuring that employee payouts are handled efficiently is crucial for maintaining morale, productivity, and compliance with labour laws. A delay or mistake in payroll can lead to dissatisfaction, reduced engagement, and even legal repercussions.

Advanced payroll systems now offer features like automated tax calculations, benefits administration, and direct deposit, which simplify the payroll process and ensure accuracy. Additionally, many organizations are now adopting flexible pay schedules and on-demand pay options, where employees can access their earned wages before the traditional payday. 

This trend is growing, especially in industries with hourly workers, as it helps reduce financial stress and improves employee retention.

• Customer Payouts

Customer payouts refer to refunds or other forms of financial compensation provided to customers. These payouts are essential for maintaining customer satisfaction and loyalty, particularly in industries like e-commerce and retail. A seamless refund process can be a key differentiator in a competitive market.

A good use case of payouts in e-commerce businesses is cash-on-delivery refunds. Most customers prefer CoD when purchasing online since it offers security, trust and ease of purchase for the user. About 30% of all online purchases are cash on delivery; this creates a new problem: refunding cash on delivery purchases. 

With payout solutions like RazorpayX Payouts, businesses can now automate the process of crediting the refund amount back into customer bank accounts, even without bank account details. Here’s how! 

• Shareholder Payouts

Shareholder payouts involve payments made to business partners, affiliates, or collaborators based on agreed-upon terms, such as revenue-sharing agreements, royalties, or commission payments.

These payouts may include equity payouts like dividends or profit-sharing. Stock buybacks also make up an important part of equity payouts, where a company repurchases its own shares from shareholders to increase shareholder value. 

Equity payouts are used to calculate important metrics like the profitability of the business with ratios like payout ratio.

• Insurance Payouts

Insurance payouts include the compensation given by insurance companies to policyholders who have faced losses or damages covered by their insurance policy. There are several types of insurance payouts – health insurance, life insurance, home insurance, fire insurance, vehicle insurance and others.

The payout is made based on the terms and factors stated in the policy, and can be made to the actual policyholder or to the beneficiaries listed.

• Crypto Payouts

Cryptocurrency is an emerging mode of making payments online. It involves transferring digital currency like Bitcoin and Ethereum into the recipient’s digital wallet. Crypto payouts offer benefits like fast processing, security and privacy and lower transaction fees.

However, it’s important to remember that cryptocurrency is still very nascent and might not be accepted by most people or businesses.

Traditional Payouts vs. Payout Software

Businesses that rely on manual processes for managing payouts through checks, bank transfers and wire transfers face significant challenges. Here are a few:

Challenges with Traditional Payouts

• Time-Consuming: Manual processes require significant time and effort, from generating checks to reconciling accounts.
• High Risk of Errors: Human error is a common issue in manual payout processes, leading to discrepancies that can be costly to rectify.
• Inefficient Cash Flow Management: Processing delays can affect cash flow, especially in businesses operating on tight margins.
• Lack of Transparency: Traditional methods often lack real-time tracking, making it difficult to monitor the status of payments and resolve issues promptly.

Features of Modern Payout Software

With modern tech solutions like RazorpayX Business Banking+, businesses no longer need to deal with the drawbacks of making payouts traditionally. Here are the benefits of automated payout software.

• Scalability: As businesses grow, payout software can scale to handle increased transaction volumes without the need for additional administrative resources.
• Enhanced Security: Advanced encryption and fraud detection algorithms protect against unauthorized transactions and data breaches.
• Cost Savings: By automating payouts, businesses can reduce the administrative costs associated with manual processing and minimize errors that could lead to financial losses.
• Improved Cash Flow Management: Automated systems allow for better forecasting and management of cash flow, as payouts can be scheduled and tracked with precision.

Process of Making a Payout

The process of making a payout can vary significantly depending on the industry and the specific needs of the business. Here’s how payouts are typically handled in various sectors:

Payouts in E-commerce

For e-commerce business leaders, managing payouts efficiently is crucial for maintaining strong relationships with suppliers and ensuring customer satisfaction. Vendor payouts are often automated through marketplace platforms, which calculate earnings based on sales and manage disbursements on a scheduled basis. 

For customer payouts, such as refunds, e-commerce businesses often rely on integrated payment gateways that can process refunds quickly and handle various payment methods, including credit cards, PayPal, and digital wallets. Offering fast and hassle-free refunds can be a significant competitive advantage, especially in markets where customer trust is paramount.

Payouts in IT & IT Services

For IT and IT services companies, payouts primarily involve employee compensation, vendor payments, and partner commissions. The dynamic nature of these industries, with their project-based work and global teams, requires flexible and scalable payout solutions. Payroll systems that can handle multiple currencies and compliance with international labour laws are essential for businesses with global operations.

Vendor and partner payments in the IT sector often involve large sums and complex contracts, making automation crucial. By integrating payout software with project management and procurement systems, IT companies can ensure that payments are made according to milestones, reducing the risk of disputes and ensuring that all parties are aligned on financial terms.

Payouts in Edtech

Edtech companies manage a variety of payouts, including those to content creators, instructors, and affiliate partners. As the industry continues to expand globally, managing these payouts efficiently is becoming increasingly complex. 

For business leaders in Edtech, adopting payout software that integrates with Learning Management Systems (LMS) and CRM tools can streamline the process. This integration allows for automatic calculation of royalties, commissions, and instructor fees based on usage data, course sales, or other performance metrics. 

Additionally, offering flexible payment options, such as cryptocurrency payouts or international bank transfers, can attract top talent and partners from around the world.

Payouts in Gaming

The gaming industry is characterized by a complex web of payouts, including those to developers, content creators, and tournament winners. Gaming platforms often need to handle microtransactions, digital currencies, and cross-border payments, all while ensuring compliance with varying regulations.

For gaming companies, using payout software that supports a wide range of payment methods and currencies is essential. Additionally, blockchain technology is gaining traction in the gaming industry, offering transparent and secure payout processes, particularly in decentralized gaming ecosystems where trust and transparency are paramount.

Payouts in Hospitality

In the hospitality sector, payouts are directed toward employees, suppliers, and partners. Employee payouts may include wages, tips, and bonuses, which need to be managed efficiently to ensure staff satisfaction and compliance with labor laws. In a sector known for high employee turnover, offering timely and accurate payouts can significantly impact retention.

Supplier payouts in hospitality cover the cost of goods and services, often involving large volumes and tight margins. Automating these payouts through accounts payable systems that integrate with procurement platforms can help manage cash flow more effectively and reduce the risk of payment delays, which could disrupt operations.

Conclusion

Business payouts are a critical component of financial management, affecting everything from vendor relationships to employee satisfaction and customer loyalty. For business leaders, mastering the payout process is essential for maintaining operational efficiency, ensuring compliance, and fostering long-term growth. 

By understanding the different types of payouts and leveraging modern payout software, businesses can streamline their processes, reduce errors, and ensure that all stakeholders are compensated promptly and fairly.

As industries continue to evolve, adopting efficient payout systems will be key to staying competitive and agile. Whether you are leading a startup or managing a multinational corporation, a strategic approach to payouts can provide a significant advantage, driving both financial success and stronger relationships across the board.

FAQs

What does a payout mean?

A payout refers to the distribution of funds from a business to another party, such as a vendor, employee, customer, or partner. It is the process of fulfilling financial obligations through payment. For business leaders, managing payouts efficiently is crucial for maintaining healthy cash flow, ensuring stakeholder satisfaction, and minimizing legal risks.

What is a payout bank account?

A payout bank account is a designated account used by businesses to manage outgoing payments. This account is typically separate from the main business account to streamline the process of tracking and reconciling payouts. For business leaders, maintaining a dedicated payout account can improve cash flow visibility and simplify financial management.

What is the difference between payout and payment?

While both terms involve the transfer of money, “payout” specifically refers to the distribution of funds as part of a larger financial obligation, often involving multiple transactions over time. For instance, payroll payouts are a recurring obligation, whereas a payment might refer to a one-time transaction for goods or services. Understanding this distinction is important for business leaders as it impacts how financial processes are structured and managed.

What are weekly payouts?

Payouts can be recurring, made at regular intervals to employees, vendors or others. Weekly payouts are those which are made on a weekly basis.

What are direct payouts?

Direct payouts are payouts that are directly transferred into the recipient’s account without any intermediary.

How long does a payout take to process?

Depending on the platform, amount or mode of transfer, payouts can take anywhere between less than a second to a few days. With RazorpayX Business Banking+, businesses can make up to 50,000 payouts in a few seconds.

The post What are Payouts? Definition, Examples, Types appeared first on Razorpay Learn.

If you’re a business owner looking for how to open a current account online, here’s an in-depth explainer with everything you need.

What is a Current Account?

A current account is a bank account that allows account holders to manage financial transactions. It is designed for regular use and provides easy access to funds. Current accounts allow users to deposit and withdraw money, make payments and manage finances conveniently.

Unlike a savings account, which is primarily used for saving money, a current account is more suitable for everyday banking needs. It is ideal for individuals or businesses who make frequent transactions, such as paying bills, making purchases and receiving money.

The process of opening a current account can be quite tedious, which is why most businesses today choose to open a current account online.

Benefits of Opening Current Account

There are several benefits to opening a current account online. Firstly, it provides convenience and flexibility. With an online current account, you can manage your finances anytime, anywhere. You can check your account balance, review transactions, and transfer funds at your convenience without having to visit a physical branch.

Secondly, opening a current account online often comes with enhanced security measures. Online banks invest heavily in security systems to protect your personal and financial information. They use encryption technology, multi-factor authentication, and fraud detection systems to ensure the safety of your account and transactions.

Online current accounts often come with added features like overdraft, credit lines and other business finance management options like payroll management, vendor management, payouts and more.

How to Open a Current Account?

Opening a current account online is a simple and convenient process. Here are the steps to follow:

Research and compare

Start by researching different banks and financial institutions that offer online current accounts. Compare the features, benefits, fees, and customer reviews of each option to find the one that suits your needs.

While plenty of traditional banks like ICICI or SBI offer robust current accounts for businesses, they lack the agility and feature-richness of current accounts offered by fintechs like RazorpayX.

Explore RazorpayX Business Banking+

Choose the bank

Once you have selected a current account provider, visit their website and navigate to the current account section. Read through the details and requirements for opening an account online.

Different providers have different MAB requirements, penalties and fees. Make sure you compare and choose the best one on the market.

Visit the bank

You can visit the bank’s physical branch or its website to learn about and begin the process of opening a current account.

Fill out the application

Complete the online application form with accurate personal information. This may include your name, address, contact details, employment information, and identification details.

Submit required documents

Upload the necessary documents, such as proof of identity, proof of address, and income documents, as specified by the bank. Ensure that the documents are clear and legible.

Verification process

The bank will review your application and documents and may contact you for additional information or clarification. The verification process may take a few days.

Account activation

Once your application is approved, you will receive an email or notification with your account details and instructions to activate your account. Follow the provided steps to activate your online current account.

Start using your account

Once your account is activated, you can start using it for various financial transactions. Set up online banking, link your debit card, and explore the features and services the bank offers.

Requirements for Opening a Current Account

Businesses need to meet certain requirements to be eligible for a current account. These requirements include:

1. Business type: the business must be registered as a sole proprietorship, partnership or company.
2. Business documents: the business will need to provide documents like incorporation certificate, partnership deed or license, proof of address, proof of identity and more.
3. Deposit and fees: Most banks charge a small fee and have a minimum balance requirement to provide businesses with the complex, high-level services they need. Make sure you are fully aware of this requirement and ready to meet it.

Documents Needed to Open Current Account

Since a current account sees huge volumes of money on a daily basis, all banks and current account providers have to comply with KYC requirements.

For this, account holders have to provide an extensive list of documents to the bank to prove worthiness.

• Identity Proof: This could be a PAN card, Passport, Voter ID card, or Driving License.
• Address Proof: Documents like Aadhar card, Voter ID card, Utility bills (electricity, phone, water), Passport, or Driving License can work here.
• Business Proof (if applicable): This might include business registration documents, a Certificate of Incorporation, or a Memorandum of Association.
• Colour photograph of the applicants
• Postal address of the applicant

Read more: List of Documents Needed to Open Current Account

Easiest Current Account Opening

RazorpayX Business Banking+ transformed businesses’ financial management. It offers end-to-end financial management tools solving for functions like payroll, vendor management, bulk payouts, banking, credit and more.

Get your Business Banking+ account now and join India’s top businesses in transforming your business finances.

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FAQs

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A business bank account is a bank account opened in the name of a company and used only to carry out business-related transactions.

It allows payments to be made or received for that company and isn’t used for personal finances and only used for business transactions.

Business bank accounts are available for different types of businesses, such as sole proprietors, limited companies, partnership firms, etc.

They provide added features like overdraft, multiuser authorization, merchant services, accounting integrations, and more, which are significantly beneficial for business financial management. 

Overview of Business Account

A business account on a platform like WhatsApp or Instagram refers to a special account offered by these services, allowing businesses to run advertising campaigns, analyze performance and customize branding.

Both business accounts are important to business function – financial management becomes incredibly challenging without a business bank account, while business accounts on internet platforms are important for digital marketing.

Ideally, a good business account should be a one-stop solution for all these requirements.

Types of Business Account

Business Current Account

A current account is a special kind of bank account intended for businesses to manage their finances better. A current account is primarily used by businesses and organizations for managing their day-to-day financial transactions, including frequent deposits, withdrawals, and payments.

They come with additional features like overdraft protection, international banking capabilities, and online banking platforms tailored to business needs.

Business Payroll Accounts

Businesses use a payroll account to make salary payments to employees. A separate payroll account makes compliance, accounting and tax calculation easier.

Payroll accounts offer automation that helps businesses automatically file taxes and payments for TDS, PF, PT and ESIC. These accounts also allow for integrations with other HRMS to make it a one-stop shop for employee management.

Accounts Payable Account

These accounts help a business manage its accounts payable liability. The vendor management process can get tricky – having a separate account to make payments and check transaction statuses makes the accounts payables process significantly easier.

Some source to pay solutions even offer accounts payable accounts that help businesses manage the entire procurement process, right from sourcing vendors to paying invoices.

Checking Account

A business checking account, unlike a personal one, is specifically designed to handle the financial transactions of a company. It keeps business and personal finances separate, making bookkeeping easier and ensuring legal compliance.

It also gives the business easier access to credit and loans, since the bank providing checking services has a direct understanding of the business’s finances and creditworthiness.

Merchant Account

A merchant account is a special business bank account for accepting electronic payments. Unlike regular business checking, merchant accounts handle credit card, debit card, and other digital transactions.

When a customer swipes their card, the money goes to the merchant account, not the main business account. The provider then transfers the funds (minus fees) after processing. Merchant accounts are most useful for online or digital businesses.

How to Open a Business Bank Account

Here’s how you can open a business bank account in a few simple steps. 

• Register your business. You can get it registered as a sole proprietorship, a partnership or a company under the Companies Act. For small businesses just starting out, it is best to apply as a sole proprietorship. For legal or architectural firms with multiple founder partners, a Partnership would be ideal. Registered Companies require extensive documentation, compliance to various taxation and disclosure laws and more.
• Apply for various licenses. Indian laws promote and support entrepreneurship through various schemes and policies. You will need to get your business registered under acts like the GST Act, and get the required licenses.
• Understand your requirement. Banks offer different types of business accounts, depending on the need. These accounts vary in terms of minimum account balance, features offered, credit lines etc.

Read more: Types of Current Account

• Apply online: most banks accept and even prefer online applications. You can go to any bank’s website and apply for a current account or any other business account. KYC documents can also be submitted online. In case the online application doesn’t work, or if you are more comfortable in a non-digital setting, you can also apply through the bank’s physical branch.

Read more: Documents needed for current account opening

• Account processing: Once the officials at the financial institution are satisfied with your documentation, they will open your account. Once your account is functioning, you can also make use of the other services offered by the bank, like credit, forex, etc. 

How To Choose the Best Business Account?

A good business account should offer you the following features and services.

Advanced Financial Management

• Seamless Transactions: A good current account should allow for easy deposits, transfers, payments, and bill payments.
• Real-time Insights: Gaining clear visibility into your cash flow through comprehensive dashboards and transaction reports is crucial for informed financial decision-making.
• Integrated Solutions: Seamless integration with popular accounting software and payroll services can significantly simplify your financial management processes.

Security & Control

• Multi-user Access: Assign different levels of access and permissions to team members, ensuring secure control and oversight over finances.
• Advanced Fraud Protection: Real-time fraud detection and alerts help safeguard your accounts against financial risks and unauthorized access.
• Dedicated Customer Support: Timely assistance from a knowledgeable and responsive business banking team is essential for resolving issues and addressing concerns.

Scalability & Growth

• Flexible Financing Options: Access to credit facilities like loans and lines of credit should be tailored to your business’s specific needs and future growth plans.
• Merchant Services: Integrated solutions for accepting payments effortlessly can enhance your customer experience and streamline business operations.
• International Capabilities: Expanding your reach globally necessitates convenient cross-border transactions and foreign exchange services.

Personalized Support & Expertise

• Dedicated Account Manager: Receive personalized support and expert advice from a business banking professional who understands your unique goals and challenges.
• Financial Planning Tools: Leverage resources and tools to forecast cash flow, set budgets, and make informed financial decisions for long-term success.
• Investment Options: Explore various investment opportunities that align with your risk tolerance and long-term financial aspirations.

Frequently Asked Questions

The post What is a Business Bank Account? appeared first on Razorpay Learn.

The monthly average balance is the average closing balance in a bank account over one month. It is calculated by dividing the sum of all closing balances over one month by the number of days in that month. 

Banks and financial service providers require businesses to maintain a monthly average balance in their current accounts to continue providing industry-first solutions to businesses.

Some banks provide zero-balance current accounts, which may be attractive to those wanting to avoid fees – but these accounts often lack the advanced features offered by minimum balance accounts.

All businesses should consider minimum balance current accounts to benefit from features like waived transaction fees, faster processing, lesser downtime, better credit ratings etc.

How to Calculate Monthly Average Balance?

Monthly average balance or MAB is calculated with the average of all the closing balances in your account over a month, and dividing it by the number of days in a month.

Monthly average balance formula:

MAB = (Sum of closing balances) / (Number of days in month)

Let’s look at an example to understand this. These were the closing balances in Rahul’s current account for the month of April. 

 Using the formula, monthly average balance comes out to be:

= (1,00,000 + 75000 + 25000 + 1,40,000 + 40,000) / 30

= 3,80,000 / 30

= Rs 12,666.66

Hence, Rahul’s monthly average balance is above the mandated Rs 10,000, and he will not be charged any penalty.

Why do banks enforce a Minimum Average Balance requirement?

A minimum average balance requirement may seem like a hurdle to businesses, but it unlocks valuable benefits.

Businesses that are able to maintain their MAB prove to the bank or financial service provider that the business has a regular and steady source of income and stable spending patterns. Maintaining MAB consistently can contribute positively to businesses’ credit scores, which helps with getting loans or emergency lines of credit.

The minimum account balance is an important source of income for the banks, which enables them to provide special features and services like spending analytics, payroll processing, vendor and invoice management, escrow services, forex services, and more.

By maintaining a minimum balance, businesses are partnering with the bank to access a wider range of tools that can streamline operations, improve efficiency, and ultimately help them grow.

Check out RazorpayX Business Banking+

Tips on Maintaining Monthly Average Balance

While the entire concept of average balance is rather simple, here are some ways in which you can optimise your monthly average balance maintenance and ensure a smooth ride with your bank.

1. Know Your Requirements

Weigh your options before you apply for any bank account. Banks and service providers offer different kinds of current accounts – startup current accounts, premium current accounts, zero balance accounts, forex accounts and more. 

Each current account comes with different features, services and minimum balance requirements.

Read more: A Guide to Types of Current Accounts

2. Avoid Multiple Bank Accounts

Avoid multiple bank accounts. This makes it hard to keep track of MAB requirement norms of each bank and comply with them each month. It also results in a large amount of money being locked away as the minimum balance requirement across all your bank accounts. 

If you’re a business owner, it’s best to open one single current account that serves all your financial needs.

Explore RazorpayX Business Banking+

3. Budget and Plan

This one goes without saying – make sure your expenses are optimised and you’re accounting for every rupee that goes out of your account! Saving money wherever possible will help you maintain a higher average balance in your account.

Robust current accounts come with accounting integrations, which automatically record and reconcile every transaction into your accounting software of choice. RazorpayX Business Banking+ integrates with all the top accounting software, including Zohobooks, Tally and more.

4. Use Credit to Your Benefit

Current accounts come with a corporate credit card, which can help with short-term expenses and purchases without putting your bank balance at risk. Be careful while using a corporate credit card – overspending can put your cash at risk when its time to pay your dues.

5. Focus on cashflow management

Well-managed cash flow will ensure your business always has a surplus of cash to maintain the minimum balance requirement. An important part of managing cash flow well is making your business payments on time and managing your budget well.

With RazorpayX Business Banking+, you can automate budgeting, vendor payments, payroll, general payouts, and more, making business finances easier to manage.

Check out RazorpayX Business Banking+

Penalties for Non-Maintenance of Monthly Average Balance

Since the monthly average balance requirement differs from bank to bank, the penalty charges are also different for each bank. Here’s a look into what non-maintenance penalties look like for account holders in India’s top banks. 

*as mentioned in official websites

Monthly Average Balance (MAB) vs Quarterly Average Balance (QAB)

It’s important to understand the differences between current accounts with a monthly average balance requirement and those with a quarterly average balance requirement.

QAB offers more flexibility, since the time period is much longer – allowing for more fluctuations in individual months. Businesses with seasonal income patterns or occasional large disbursements like construction companies working on a project basis would benefit from using a QAB current account.

MAB requires maintaining a specific minimum balance each month, which encourages consistent financial management. MAB accounts also come with added features and better interest rates.

Check out RazorpayX Business Banking+

Benefits of Maintaining Monthly Average Balance

If the concept of a minimum balance sounds too daunting for you, don’t worry.

Banks also offer zero-balance bank accounts without an MAB, meaning accountholders can maintain a nil balance without incurring penalties.

Read more: Zero Balance Accounts – An Explainer

Keeping a minimum balance is important, so it’s important to select the right kind of current account. The ideal current account is a one-stop shop, providing your business with solutions to every financial problem you might face. 

FAQs 

The post Monthly Average Balance (MAB) appeared first on Razorpay Learn.

Opening a current account is not as easy as it may sound – business owners face the vexing problem of sorting through the dozens of documents and paperwork required for KYC and legal compliance.

This comprehensive guide gives you the clearest picture of the documents needed to open a current account.

Modern banking solutions like RazorpayX solve for all your business banking needs with a one-stop dashboard. Send money to vendors, employees, customers and so much more, all from one place with RazorpayX Business Banking+.

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Types of Businesses that Need Current Accounts

• Sole Proprietorship
• Limited Companies (Public or Private)
• Limited Liability Partnership (LLP)
• Hindu Undivided Family (HUF)
• Partnership
• One Person Company (OPC)
• Sole proprietorship
• Trusts, associations and clubs (TASC)

List of Documents Needed to Open a Current Account

There are some documents that you need to open a current account irrespective of your type of business, and a few additional documents based on the type of your business. 

Note: you will need to submit KYC documents for all the authorised signatories for your business.   

Private or Public Limited Company

Here’s the checklist of documents required to open a current account for joint stock companies (public or private limited):

• Memorandum of Association (MoA)
• Articles of Association (AOA)
• An updated list of directors of the Public/Private limited company
• Board Resolution (BR)
• Shareholding pattern/ list & ID proofs of all the beneficial owners owning more than 25% of the firm 
• Address proof: anyone out of Aadhar card, voter ID card, rent agreement, electricity bill, telephone bill, water bill, passport, driving license
• Identity proof: anyone out of PAN card, passport, voter ID card, driving license, aadhaar card
• Business registration proof or incorporation certificate
• PAN of the entity
• Latest passport size photo
• Account opening cheque from an existing bank account

Sole Proprietorship Firm

• Two documents in the name of the sole proprietorship firm confirming the name and address — issued by a Government authority/ department, as registration/ license document 
• NREGA issued Job Card
• Latest passport-size colour photograph of the sole proprietor
• Photograph, identity, and address proof of the POA ( Power of Attorney) holder
• Address proof: anyone out of Aadhar card, voter ID card, rent agreement, electricity bill, telephone bill, water bill, passport, driving license
• Identity proof: anyone out of PAN card, passport, voter ID card, driving license, aadhaar card
• Business registration proof or incorporation certificate
• PAN of the entity
• Latest passport size photo
• Account opening cheque from an existing bank account

Limited Liability Partnership (LLP)

• Registration Certificate issued by Registrar of Limited Liability Partnership
• Photograph, identity, and address proof of the POA (Power of Attorney) holder
• LLP letter
• LLP deed agreement
• An updated list of designated partners
• Address proof: Aadhar card, voter ID card, rent agreement, electricity bill, telephone bill, water bill, passport, driving license (any one)
• Identity proof: PAN card, passport, voter ID card, driving license, Aadhaar card (any one)
• Business registration proof or incorporation certificate
• PAN of the entity
• Latest passport size photo of the partners
• Account opening cheque from an existing bank account

Partnership Firm

• Shareholding pattern/ list & ID proofs of all the beneficial owners owning more than 15% of the firm 
• Partnership deed
• Partnership letter
• Trade license agreement
• Address proof: Aadhar card, voter ID card, rent agreement, electricity bill, telephone bill, water bill, passport, driving license (any one)
• Identity proof: PAN card, passport, voter ID card, driving license, aadhaar card (any one)
• Business registration proof or incorporation certificate
• PAN of the entity
• Latest passport size photo
• Account opening cheque from an existing bank account

Trust, Society, Association & Club (TASC)

• Address proof: Aadhar card, voter ID card, rent agreement, electricity bill, telephone bill, water bill, passport, or driving license – for every authorised signatory (any one)
• Identity proof: PAN card, passport, voter ID card, driving license, Aadhaar card – for every authorised signatory (any one)
• Address proof and PAN of the entity (refer to the list of acceptable address proofs above)
• Account opening cheque from an existing bank account
  • Trust Deed or Bye-laws, if applicable
  • Memorandum of Association (MoA)
  • Article of Association (AoA)
  • Rules of Acts or Gazette notifications, if applicable
  • List of directors/members of managing committee members/managing council
  • Proof of identity :
  1. Registration Certificate, in case of societies and trusts
  2. Recognition Certificate for an educational institution
  • Exemption proof from Income Tax, if applicable
  • List of beneficial owners holding more than 15% in the trust directly/indirectly
  • PAN and Address proof of the beneficial owners (refer to the list of acceptable address proofs above)

Hindu Undivided Family (HUF)

• Address proof : Aadhar card, voter ID card, rent agreement, electricity bill, telephone bill, water bill, passport, or driving license for all authorised signatories (any one)
• Identity proof: PAN card, passport, voter ID card, driving license, aadhaar card for all authorised signatories (any one)
• Business registration proof or incorporation certificate
• Account opening cheque from an existing bank account
  • PAN in the name of the HUF
  • HUF letter
  • Latest passport-size colour photographs of authorised signatories
  • Landline/mobile number/email ID

Liaison/Representative Office, Project Office, and Branch Office

Given below are the general current account opening documents required by a project office/representative office/branch office account:

• Address proof: Aadhar card, voter ID card, rent agreement, electricity bill, telephone bill, water bill, passport, or driving license of the authorised signatories and beneficial owners (any one)
• Identity proof: PAN card, passport, voter ID card, driving license, aadhaar card of the authorised signatories and beneficial owners (any one)
• Business registration proof or incorporation certificate
• PAN of the entity
• Address proof of the entity
• Latest passport-size colour photographs of all the authorised signatories and beneficial owners
• List of owners  with more than 25% in the company directly/indirectly
• Landline/mobile number/email ID of the entity
• Account opening cheque from an existing bank accountApart from the above-mentioned documents, certain specific documents are required depending on the type of entity. They are as follows:
  

  Liaison/Representative Office	Branch Office	Project Office
  Copy of IRDA( Insurance Regulatory and Development Authority) approval for foreign insurance companies    OR    Copy of RBI permission	Copy of approval under the Banking Regulation Act    OR   Copy of RBI permission    OR   Copy of certificate to open a branch office in a Special Economic Zone	Project/Contract Award letter and declaration for opening a project office    AND   Confirmation Document of the category mentioned in the declaration    AND    Acknowledged copy of reports with the project details that were submitted to RBI

Now, while we have sorted the documents required to open a current account, let’s have a look at some of the other crucial aspects of choosing a current account.

Refer to the KYC Guidelines by RBI

How to Choose the Right Current Account?

Here are the things you need to consider while selecting a current account for your business:

1. Minimum average monthly balance requirement
2. Overdraft limit
3. Customer support
4. Demand drafts fees
5. Payment capabilities – UPI, NEFT, RTGS, etc
6. Online banking and mobile apps
7. Payroll management
8. Vendor management
9. Budgeting and supply chain management
10. Accounting integrations

Modern banking solutions like RazorpayX solve for all your business banking needs with a one-stop dashboard. Send money to vendors, employees, customers and so much more, all from one place with RazorpayX Business Banking+.

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Frequently Asked Questions

The post Current Account Opening Documents – List of Valid KYC Documents appeared first on Razorpay Learn.

Knowing the benefits of current account is important because it allows for more frequent and flexible access to funds than other types of bank accounts. They are typically used for day-to-day banking and are most suitable for those who regularly move money in and out of their account. 

Opening a current account is a business founder’s first step not just towards business legitimacy, but also toward smoother and more organised financial operations. 

Top Features of Current Account

Here’s a list of the top features of a Current Account. Let’s have a look.

Instant Access

A current account provides instant access to funds 24/7, enabling customers to make payments, deposits and withdrawals as and when required.

Overdraft Facility

A current account offers an overdraft facility to allow customers to withdraw more money than they have in their account, subject to a pre–agreed limit.

Direct Debits/Standing Orders

Customers can set up direct debits or standing orders to make regular payments from their current accounts without having to remember to do it themselves.

Online Banking

Most current accounts offer online banking, enabling customers to check their balance, view transactions, make payments and transfer money from anywhere in the world.

Mobile Banking

Many banks now offer mobile banking, allowing customers to make payments and check their balances on the go.

Multi–Currency Accounts

Some banks offer multi–currency current accounts, enabling customers to hold multiple currencies in one account and switch between them as required.

Interest on Credit Balances

Some current accounts may offer interest on credit balances, although this is usually minimal.

Reduced Fees

Many banks offer reduced fees or even free banking to current account customers, depending on their individual circumstances.

Did you know?

RazorpayX-powered Current Account is a hassle-free current account for businesses that enables them to manage their finances more efficiently. It allows businesses to open and manage a current account, and also provides features like free unlimited transactions, free virtual cards and integrated APIs, free access to working capital, and free access to analytics.

5 Benefits of Current Account

From streamlining your business finances to imparting legitimacy to your financial operations, there are many benefits of opening a current account.

1. No balance? No problem

Picture this. It’s the end of the month.

On one hand, you’ve made sales, and your payments are yet to come through. On the other hand, you have bills to pay and all your due dates fall before you receive any money. 

What if, in the process of paying your month-end dues, the balance in your account hits zero? This is where the overdraft facility steps in.

One of the key benefits of current accounts is the option of overdraft. This means you can overdraw your account (withdraw money beyond your available balance) for a short period to meet working capital needs or deal with a short-term cash crunch.

Depending on the bank’s terms and conditions, your transaction history and your rapport with the bank, you may or may not be charged interest on the amount you overdraw.

2. Never run out of cheque leaves

Remember the time you opened a savings account? Your bank, most likely, gave you a chequebook for the year. Once you were out of leaves, you had to go back to your bank and pay to get another chequebook.

Another one from the host of benefits of current accounts is that you get an abundance of cheque leaves. As a current account holder, you get a set number of cheques that you can use every month, free of charge. This means you get a chequebook refresh every month (based on the terms of your bank) so you can transact without the frustration of running out of cheques.

3. Transact limitlessly!

As your business grows, so will your volume of transactions.  In this situation, limits on the number of transactions are unthinkable. 

One of the fundamental benefits of current accounts is the absence of transaction limits. This happens in two ways:

• You don’t have limits on the amount of any transaction
• You can make any number of transactions in a month, whatever way you prefer – online transfers, cheques, demand drafts, pay orders, or cash

4. Credit, set, grow!

When it comes to making them part with their money to fund you, financial institutions can be difficult to convince. And, a current account can give you quite the boost there.

A current account is a record of your transactions, including repayment of the previous debt if any. It also shows the lender your financial standing – and the basis of your financial projections. 

Giving you credibility in the eyes of financial institutions and helping you maintain a sparkling credit score is one of the lesser-known but vital benefits of current accounts.

5. Current account, future plans

When you set out to make projections for your business, having messy financials doesn’t help.

One of the many benefits of current accounts is that they render your money matters legible. Current accounts help provide a clean record of your transactions for analysis, telling you exactly where your money is coming from and going, and painting a picture of your growth on a month-on-month basis. 

Looking at the trends your current account is showing you and analysing them, you can chart out a plan for the future of your business backed by clean financial data.

Read more: 6 Differences Between Current Account and Savings Account

Documents needed to Open a Current Account

Here is a list of all the basic documents that are required to open a Current Account.

Proof of Identity: Passport, PAN Card, Voter ID, Driving License, etc.

Proof of Address: Utility bill, bank statement, passport, etc.

Photographs: Passport–sized photographs.

Initial Deposit: A minimum deposit is required to open a current account.

KYC Documents: KYC (Know Your Customer) documents such as Aadhar Cards, PAN Cards etc.

Signature Proof: Signature verification from a banker or a post office.

Cheque Book: A chequebook for making payments.

Read: Documents Required for Opening a Current Account Online

Types of Current Account

Let’s have a look at the different types of current accounts.

Basic Current Account

A basic current account is a straightforward account that allows you to deposit and withdraw money, pay bills, and make payments online. It typically doesn‘t offer any additional features such as an overdraft or interest.

Business Current Account

A business current account is a type of account specifically designed for business owners. It is typically used to manage cash flow, pay suppliers and vendors, and keep track of expenses.

Premium Current Account

A premium current account is a type of current account that offers additional benefits, such as higher interest rates, insurance, access to exclusive discounts, and more. Premium current accounts are usually more expensive than standard current accounts and require a minimum monthly deposit. They are designed for customers who want more from their current account, such as access to preferential services, exclusive offers, and other benefits.

Joint Current Account

A joint current account is a type of account that is shared between two or more people. It is a great way to manage finances and pay bills together.

Offshore Current Account

An offshore current account is a type of account that is held in a foreign country. Offshore accounts may offer tax advantages, but they can also come with additional risks and regulations.

What is MAB (Monthly Average Balance)?

The monthly average balance is the average amount of money in a bank account over a given month. It can be calculated by adding up the total balance at the beginning of each day and dividing it by the number of days in the month.

The monthly average balance is used to determine the fees and interest rates associated with the account. It is important to maintain a high average balance to avoid fees and get the best interest rates.

•  RazorpayX allows business owners to open current accounts, pay taxes, schedule payments, pay vendors seamlessly and check invoices from a single dashboard. This saves valuable time and effort. 
• It fills the gap between advanced banking solutions and finance professionals. It allows easy accounting software integration.
• With RazorpayX Payroll, businesses can automate salary payments and provide insurance policies to their employees.

That’s not all.  You can apply for a RazorpayX-powered Current Account in a matter of minutes.

Ready to supercharge your business banking?

Apply for your Current Account!

Read more:

Current Account Documents

What is Current Account

Business Account

Monthly Average Balance

Zero Balance Current Account

Types of Current Account

Frequently Asked Questions

The post Benefits of a Current Account: Features, MAB & More appeared first on Razorpay Learn.

A savings account is a bank account used to save money and earn interest on deposited cash, while a current account is meant to handle large volumes of transactions daily.

Savings accounts are generally used by individuals who don’t have complex financial needs and do not make huge volumes of transactions. Current accounts are used by businesses or high-net-worth individuals who need to make frequent deposits and withdrawals.

Current accounts are absolutely essential for businesses. They facilitate smooth cash flow and better financial management, resulting in better bottom lines and more profits.

Today, digital-first current accounts like RazorpayX Business Banking+ offer more than just banking; centralized dashboards for everything from vendor management to payroll, enhanced with automation at all points.

What is a Current Account?

A current account is designed to facilitate frequent financial transactions by traders, business people, and entrepreneurs running their companies, firms, trusts, etc. 

Read More: Benefits of Current Account for Business

Current accounts come with a host of specialized featured for businesses like overdraft, loan facilities, corporate credit cards, vendor and payroll management, and more. RazorpayX Business Banking+ is one such banking solution specially designed to simplify the complex financial needs of businesses.

Bank smarter today

What is a Savings Account?

As the name suggests, a savings account is designed to encourage and promote savings. The holder can deposit money conveniently, on which the holder can earn interest. It can be opened by an individual or jointly who intend to build wealth for their short-term and long-term financial goals. 

Typically, a savings account offers interest income, and the minimum balance to be maintained is also slightly on the lower side with the facility to issue cheques.. However, the account holders are allowed a limited number of transactions.

Read More: FAQs on Basic Savings Deposit Account

Current Account vs Savings Account

A current account is designed to facilitate frequent business and trade transactions, while a savings account is intended to save and accumulate wealth for future goals.

Current accounts are used majorly by organisations, business owners, companies, etc, while savings accounts are made for salaried people with regular income and short term financial goals.

Current accounts don’t have any restrictions on the maximum number of transactions and, therefore, do not provide any interest earnings to the account holders. Savings accounts allow only a limited number of transactions and so can offer interest-earning linked to a benchmark, such as a bank rate (mostly 4% – 6%).

Minimum balance requirements for current accounts are generally higher than savings accounts since banks have to provide expensive, complex financial services to business, which individuals do not require. Current account holders are also allowed to overdraw funds for short term requirements.

Future of Business Banking

Lately, the collaboration of banks with fintech is stealing the spotlight. Neobanks have been the talk of the town as they are the beautiful product of this collaboration. They leverage their modern digital platform to analyze customer data and make data-driven decisions.

Long, tedious processes involving payments and disbursals can weigh on businesses often but with Neo-banking platforms, money movement and business insights, financial operations can get much simpler.

Today, tech-savvy neo banks swear by the host of services they offer, some of them being – multi-access collaboration, end-to-end automation, real-time notifications and transparency.

Choose the best current account for your business

Read more:

Current Account Documents

What is Current Account

Business Account

Monthly Average Balance

Zero Balance Current Account

Types of Current Account

FAQs

The post Differences between Current Account and Savings Account appeared first on Razorpay Learn.

A current account is a type of bank account that enables account holders to deposit and withdraw funds without notice.

Current accounts are mostly opened by business owners to engage in daily transactions like cash deposits, withdrawals and transfers endlessly. Financial institutions offer different types of current accounts allowing a diverse range of features to their customers. 

Today, digital-first current accounts like RazorpayX Business Banking+ offer more than just banking; centralized dashboards for everything from vendor management to payroll, enhanced with automation at all points.

Types of Current Accounts

• Standard Current Accounts 

Standard current accounts are the most common types of current accounts which requires the account holder to maintain a minimum average balance every month. This account has a restriction on the payment of any interest. However, the financial institution offers a myriad of features like access to debit cards, cheque book, overdraft facilities and many more. 

• Basic Current Accounts

These current accounts are mostly operated by individuals having lower incomes like pensioners, college-goers, etc. The primary objective of this current account is better management of finances in a systematic way. However, unlike other types of current accounts, restrictions have been imposed on the daily transaction of this current account. 

• Premium Current Accounts

As the name suggests, this current account type offers a plethora of exclusive features and offers to its customers. Hence, individuals or businesses use this current account for operating daily transactions. 

• Packaged Current Accounts 

Like the premium current accounts, packaged current accounts offer even more perks and benefits such as medical support or assistance and travel insurance. However, the account holder can enjoy these benefits on account of the payment of nominal monthly account maintenance fees. 

• Foreign Current Accounts

Foreign current accounts have account holders who are Non-Resident Indians or other individuals operating in foreign currencies. These current accounts do not come under national deposit insurance schemes.  

How to Open a Current Account Online? 

Step 1: Go to the official website of a registered bank and download the current account opening form. 

Step 2: Properly fill out personal credentials, bank account details and other necessary sections. 

Step 3: Upon filling up, take a printout of this current account application form. 

Step 4: Finally, go to the nearest branch of the respective bank and submit this form along with the KYC documents. 

Apart from the online method, one can visit the nearest bank branch and collect the form from the concerned department and file it for submission. 

What are the Documents Required to Open a Current Account? 

• Address proof like Voter ID, Aadhaar card, Ration card, etc. 
• Individual PAN Card / Business PAN Card
• Memorandum of Association (MoA) or certificate of incorporation, in case a current account holder is a company or trust 
• An agreement in the case of a partnership firm. Also, in this case, one needs to submit a copy of each partner’s ID proof and residential proof. 
• A saving account cheque for opening a current account
• Proof of communication address, in case, a current account holder is a company
• The latest passport-size photographs of the nominees 

Depending on the type of business, the documents required might change. Get the full list of documents needed to open a current account here.

Features of Current Account 

• Transaction Amount – Opening any type of current account is inevitable when you are starting a registered business. One primary feature it offers is it accepts transactions beyond the permitted limit that is present in the savings account. 
• Minimum Balance – The maintained minimum balance of a current account is higher than that of a savings account. However, if someone fails to maintain this balance he/she gets subjected to penalties or fines.
• Different Account Holder – In terms of operations, an individual, partners, private and public companies, trusts and associations can open and operate current accounts. 
• Unlimited Transaction – Different types of current accounts come with unlimited transactions in a day. 
• Smooth Transaction – Small business owners or entrepreneurs mostly use current accounts to process their daily transactions smoothly. However, a single business can have only one current account registered under its name. 
• Internet/Mobile Banking – Small business owners having any type of current account will have access to easy Internet banking and mobile banking. 
• Overdraft Facility – Current account holders have access to an overdraft facility.
• Short-Term Funds Available – Current account holders can borrow short-term funds. However, they need to pay interest on account of the short-term funds borrowed from the bank. 

Benefits of a Current Account

• Large Payments – Upon opening a current account, business owners can receive or pay large volumes of cash systematically. 
• Unlimited Withdrawals – Account holders have access to unlimited withdrawals subject to cash transaction fees. 
• High Accessibility – Any type of current account can be accessed from any of the locations apart from the bank’s home branch. Only a nominal charge will be required to pay upon depositing cash to the bank accounts from other locations. 
• Easy Transaction – With a current account, one can make direct payments in the form of pay orders, cheques and demand drafts. 
• Additional Benefits – Current accounts opened for business purposes can unlock some additional benefits. It includes depositing cash or withdrawing funds from any location, getting free inward remittance, carrying multi-location transfers, etc.
• Easy opening – To open a current account, applicants need to follow the KYC guidelines and fill up other necessary details. 
• Gives Credit Knowledge – Current accounts enable creditors to know about the creditworthiness of the account holder with the help of interbank connections. 

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