Business banking
for clinical pharma contractors

If you're thinking it's about time you got a business bank account, or if you're unhappy with the one you've already got, then this is the feature for you. As a contractor you should have enough money coming in to be a 'cash-generative' business so banks should be encouraging you with open arms!

Do you need a business bank account?

If you work in a PAYE fashion through an umbrella agency there is no real reason to have a business account, as all money you receive is net. But even if you operate through your own Limited company, transactions can be carried out through your personal bank account. However, it is more professional to have a business account. It not only gives you a more credible status but it should make it easier to organise your business and personal expenses.
What business bank account ?

Choosing a business bank account really depends on various factors - are you operating under PAYE or a Limited company? How much support do you require from your bank?

The criteria you may want to use includes looking at:

Do your Research

Explore the incentives offered by each of the high street banks as well as check internet banks and the building societies. Walk into any branch and they will give you a binder or folder with useful tips on self-employment and a floppy disk with a business plan outline for free (Perhaps not terribly helpful if you are already contracting). Still, many high street banks now offer free personalised business set-up advice, which could be useful if you haven't set yourself up as a company. It is worthwhile to note that some high street banks do not charge for 'managing' your business account, while others do.

There are a number of incentives, which banks regularly offer. For example, at one point the Co-operative Bank was offering a banking package, which was offering free banking for 18 months, and then on the anniversary of opening the account holders would receive a £25 loyalty bonus. The package also included a free-for-life business Visa charge card (i.e. no fees) and discounted business loans.

As a contractor you are inherently away from your home for long periods at a time, and as such you may want to consider distance banking - telephone and internet only accounts. As these self administered banks are both more efficient for the bank (and probably you) than doing everything through your local branch on a Saturday morning, they will come with better interest rates and most of the electronic transactions are free.

 

Which bank for me?

Although the 'big four' banks still dominate the small business market alternative banks are becoming increasingly popular. The following section looks at each type of bank, assessing the advantages and disadvantages of each:

The 'Big four'

The big four are Barclays, HSBC, Lloyds TSB and NatWest and they hold over 80% of small business accounts.

What can they offer me?

They offer the full range of products. Bank transactions can be made either at your local branch, over the telephone or via the internet.

Where they distinguish themselves from other banks is the support that they offer their small business customers. Every customer is assigned a 'relationship manager' (usually based in the local branch) who will be experienced in dealing with small businesses offering support and advice on general business issues as well as banking matters.

Banking with one of the 'Big four' will open up a range of funding options. From loans to leasing, your relationship manager will suggest which funding will suit you - and having built up a track record with the bank, you may be able to get favourable rates.

The bank may provide seminars or educational literature on various aspects of running your business. They often provide bookkeeping software (profit and loss accounts, cashflow forecasts) although if you have an accountant, then this may not attract you.

Disadvantages

The 'Big four' have received a lot of criticism recently for their bank charges. When compared to smaller banks, they seem to charge for everything from paying in a cheque to making a direct debit payment. And they don't pay much if any interest on their business accounts either, no matter how much you are in credit.

You may also feel uncomfortable with accepting advice from a bank manager who is clearly not an independent advisor. But it is worth remembering, that, although a bank manager will be keen to recommend the bank's own products, it is not in their interest to give advice that will harm their client's business.

Who are they suited to?

Despite the criticisms, the fact is that most small businesses bank with one of the 'Big four', if for no other reason than convenience. Despite the emergence of internet and telephone banking, many people feel happier having a local branch as well, where they can pay in money and talk, face-to-face, with their manager. If you're the type who wants a 'hands-on' approach to your banking then having a local branch will be invaluable.

These banks also have a wealth of information and experience, which could come in very useful if you are new to running your own business, as well as the full package of funding options. For example, Natwest offers:

So if you need these services, it is probably best to bite the bullet with banking charges. Try to see them as a business cost, in the same way as electricity and the rent, and make efforts to reduce them.

 

Other high-street banks

These would include the national banks with less high-street presence than the 'Big four', such as the Bank of Scotland. Also former building societies, the Alliance and Leicester, Bradford and Bingley and Abbey.

What can they offer me?

Since these banks have fewer branches than the main clearing banks, they tend to offer a less relationship-focused service. Although customers can make transactions at a branch, they are encouraged to manage the account by telephone or over the internet.

Bucking the trend of their larger counterparts, these banks have lower or flat rate charges and offer interest on their current business accounts. If you need finance, these banks often provide overdraft or loan facilities, although the range of funding options may not be as wide as the larger banks' offering.

Disadvantages

They have fewer high-street branches than the "Big four", which will be a drawback if you need to make regular transactions over the counter. You will not generally be assigned a manager, although advice may be available from business managers at selected branches or by phoning a central business centre.

Also, if they offer free banking, remember to read the small print. It is sometimes limited to a certain number of transactions per month, in which case it's worth working out if you're likely to exceed their limit and how much it will cost you.
Who are they suited to?

If you are looking for a bank with a high street presence, but you're not interested in a very close relationship or hands-on advice from your bank manager, then this option could be for you. They don't have the resources of the larger banks, but the cost benefits of interest on your account and low charges are certainly worth investigating.

 

The smaller banks

They include the Cooperative Bank, Fleming Premier, Cater Allen etc

What can they offer me?

These banks offer a direct business banking service. Most transactions are made electronically or by post and you manage your account by telephone or on the internet (although in some cases the bank will have an agreement with a high-street bank to allow customers to use its counters).

The smaller banks offer higher rates of interest on their business current accounts and lower charges than the high-street banks. They may even offer free banking, but again, check for a limit on the number of transactions you can make per month to see if you're likely to exceed it.

Drawbacks

As they have an absence of branches these banks are not an option if you need to drop in every day to deposit or withdraw cash - hopefully your agent doesn't pay you in cash! They are also unsuitable if you're looking to your bank for advice, support or funding - it is strictly a banking service that they offer.

Who are they suited to?

Smaller banks offer a real alternative to businesses that run in credit, that receive direct payment from clients into their bank accounts and are not looking for funding or advice from their bank. Contractors, whether strictly freelance or not, should definitely investigate this option.

 

Summary

Choosing the right account will depend on your requirements. You may already have a business account in which case it won't hurt to see what the other banks are offering. With increasing competition between the institutions, you as a contractor, should not only have better choice, but also better service from your bank. Don't be afraid to change banks, as there are many incentives for you to take advantage of. For example, at the time of writing, Barclays was offerering 9 months free banking if you wanted to switch from another bank's business account. So, if you feel you've been short-changed then perhaps it's time to see what's on offer elsewhere.

 

Resources

Abbey National Alliance & Leicester Barclays Bradford & Bingley Citibank Co-Operative Bank First Direct HSBC Lloyds TSB Natwest Royal Bank of Scotland Yorkshire Bank

www.abbeynational.co.uk www.alliance-leicester.co.uk www.barclays.co.uk www.bradfordandbingley.co.uk www.citibank.com/uk www.co-operativebank.co.uk www.firstdirect.com www.hsbc.co.uk www.lloydstsb.com www.natwest.co.uk www.royalbankscot.co.uk www.ybonline.co.uk

Don't forget - there are also non-business accounts which will pay higher interest on your hard-earned money which are particularly suitable for those contractors who work through the PAYE method. They include:

Cahoot www.cahoot.com - Frequently appears at the top of most best-buy tables in the personal finance press with a range of market leading products including their popular cahoot Current Account – winner of Money£acts best current account interest rate award for 3 years running, offering guaranteed high interest rates, a £250 interest-free overdraft and free purchase protection.

ING Direct www.ingdirect.co.uk - With over 1 million customers in the UK alone, the ING Direct Savings Account offers: