A current account is specifically for businesses. Banks did this bifurcation of accounts due to many reasons.
In the write-up, we will highlight the point why the Current Account is for business. You will also get to know about Zero Balance Current Account Online. After having the idea of a zero balance current account online for MSMEs, we will share insights about how this account is beneficial for MSME and SME businesses.
0 balance current account is the best shot a business can take to have financial inclusivity. Just as a savings account is important to nurture the needs of an individual, current accounts are important for serving the businesses. We never heard of a business without a current account. Get to know why below.
Also Read: Best Ways To Manage Accounts And Data For Retail Shops
Why Zero Balance Current Account For MSME / SME ?
Online bank account opening with zero balance bank is allowed for businesses where they can manage the money easily. A business will need a visible and reliable place to store all the daily transactions.
A business can easily withdraw cash from a cashpoint through the current account. It can easily set up direct debits or standing orders. Smooth online banking is provided from the bank to the business current account with zero balance.
Like other bank accounts, a business will get a Paying debit card and chequebook.
Also Read:- Vyapar Credit Card for MSMEs | Benefits, Eligibility, Launch Date
With the current account, it is possible to check every financial transaction. With the help of the current account following is eased up for the business:
- Making payments and receiving payments get easy. Some banks do have their banking apps that allow more feasibility.
- Budgeting gets very easy here. All the business transactions are in one place and because of that budget for the next financial year is easy to estimate and make.
- Through a Current Account, you can make a great credit score. For that, you have to pay bills on time and avoid overdraft facility and bank charges. With a great credit score, it gets very easy for banks to provide business loans to the businesses.
Also Read: Best Tips For Managing Accounts Payable & Receivable For Your Business
What is Zero Balance Current Account for Business?
This account is for a business that conducts multiple transactions daily. It is like a current account that is not restricted to a minimum balance.
Zero Balance account doesn’t charge any fees even if the balance is zero. Corporate or business uses this kind of account to ensure that enough funds are available to different departments. Consumers do not use this account; businesses greatly use it. Also, to improvise the payments, a business can have multiple zero balance subaccounts.
A 0 balance current account allows the business to conduct the transaction without any average monthly balance. This type of account provides facilities the same as a regular current account, except it can be opened with a NIL balance, and there is no restriction on keeping an average monthly balance.
Note: Average Monthly Balance here refers to the day-end closing balance sum divided by the number of days monthly.
How is Zero Balance Account Beneficial for MSME and SME business?
Also Read :- List of Businesses Under MSME
MSMEs and SMEs are businesses that involve many recurring transactions. They need an account that is cost-effective and provides an easy transaction process. Below are some of the reasons why Zero Balance Current Account is beneficial for MSMEs and SMEs:
No Extra Cost:
To open a 0 balance current account, you, as an MSME or SME, don’t need to make a great deposit. Most banks charge a high minimum balance, which is difficult for the shop owners to maintain and pay.
In this kind of account, you don’t require maintaining an average monthly balance. Moreover, there are no bank charges if the account balance is nil. This sort of account is very friendly for the SME or MSME.
They are small businesses that require some cost-effective solutions. With zero balance, they can easily enjoy this benefit and carry on with their expenses.
Also Read: Types Of Accounts In Accounting
Smooth Transactions:
With the help of the this account, the transaction is smoothened. The business can perform the transaction from anywhere and everywhere. There are no extra charges for depositing and withdrawing the money from this current account. There is no limit to the number of transactions in a day.
Because of limitless transactions, MSME is highly benefited. The setup of the transaction system in a 0 balance current account is done keeping in mind the requirements of MSME and SME. There is no chain of steps involved in performing a transaction through a Zero Balance account.
Separate Personal Asset:
Having data that shows the difference between personal assets and corporate asset is important. It is highly recommended to not mix or match the assets.
With the help of a current account, you can keep a constant track of the cash flows. With a clear division, you can plan and manage the budgets of the business easily and effectively.
Also, a clear division of assets and cash flow is helpful for tax and deduction purposes.
Separate Personal Asset:
Having data that shows the difference between personal assets and corporate asset is important. It is highly recommended to not mix or match the assets.
With the help of a current account, you can keep a constant track of the cash flows. With a clear division, you can plan and manage the budgets of the business easily and effectively.
Also, a clear division of assets and cash flow is helpful for tax and deduction purposes.
MAB Requirement:
MAB refers to the Monthly Average Balance. As a current account holder, a business needs to calculate it. For MSMEs and SMEs, there is no need to maintain the MAB for their zero-balance savings account.
Also Read: Best Ways To Manage Accounts And Data For Restaurants
Documents Required for Opening MSME Current Account
Before approaching a bank, ensure you have the following documents ready:
Proof of Identity:
- Identification of key personnel, such as proprietor/professional/institution/association, managing account operations.
- PAN card, Aadhaar card, voter’s ID, passport, or driving license.
- Address proof, such as a utility bill, telephone bill, or Gumastha license.
Proof of the Existence of the Business:
- Shops and establishment license/Gumastha license.
- GST registration certificate.
- Business registration certificate issued by the respective state government.
- Registration certificate issued by RBI (Reserve Bank of India) or SEBI (Securities and Exchange Board of India).
- Licenses issued by a relevant authority, like an EXIM license issued by the Director General of Foreign Trade (DGFT) or a food and beverage license issued by the Food Safety and Standards Authority of India (FSSAI).
Proof of Business Address:
- Title deed/registered rental agreement.
- Property registration document.
- Copy of property tax/water bill.
- Bank account statements.
- TAN (Tax Deduction and Collection Account) allotment letter issued by the IT Department.
Additional Documents:
- Depending on the business constitution and the profile of key account operators, you may be required to furnish additional documents. These could include:
- Financial statements.
- Audited accounts.
- Business plan.
- Board resolution.
- Power of attorney.
- Partnership deed.
- Memorandum and Articles of Association.
- Income tax returns.
- Import-export code.
Ensure you check with the bank for any specific requirements based on your business structure and key account operators’ profiles.
Conclusion
SME or MSME having a current account is a must. With this, they can build up their business in a professional way. This account will allow them to conduct a variety of financial activities daily.
The zero balance current account pays no interest and has no minimum account balance requirement.
It is the best fit for SMEs or MSMEs as these businesses may not have the capacity to deposit the amount for opening the current bank account.
Through 0 Balance Current Account SME MSME can easily open their professional business account and enjoy all the perks of having a current account.
FAQs
Which score is better Experian or CRIF(experian vs crif)?
The scores range from 300 to 900, and a score of 700-750 or higher is typically deemed ideal for most loan products. Both scores are freely accessible for checking and are authorized by the Reserve Bank of India. There isn’t a clear-cut answer as to which score holds superiority.
Can I open a Zero Balance Current Account for MSMEs?
A current account with zero balance provides MSMEs and SMEs with the flexibility and scalability they need to adjust to evolving business demands and cash flow variations. Small businesses have the option to open several current accounts customized for different purposes, like managing payroll, making supplier payments, or covering project expenses.
What is Monthly Average Balance?
The Monthly Average Balance, sometimes referred to as the Minimum Average Balance, represents the average closing balance of your account for each day throughout the month. It is calculated by dividing the sum of the closing balances for each day of the month by the total number of days in that month.
Failing to maintain the required Monthly Average Balance in your account may result in penalties imposed by your bank, depending on the extent of the shortfall.
New entrepreneurs or owners of small businesses might not perceive the value in maintaining a minimum balance, as they could allocate these funds elsewhere.
Consequently, many small business proprietors seek out zero balance current accounts or current accounts that do not mandate maintaining a minimum balance.
Can a Sole Proprietor Have a Current Account?
If you’re a sole proprietor, you might wonder if you need a separate bank account for your business. While it’s not required, having a dedicated business bank account is highly recommended. This guide will explain why it’s important to keep your personal and business finances separate and how to set up a business bank account. Also read about 7 types of company registrations in India. Also one can open zero balance current account for proprietorship with ease.