Why do Sole Proprietors in India Use a Current Account?

Posted on Thursday, November 14th, 2024 | By IndusInd Bank

A sole proprietorship is the simplest and most common form of business structure in India. The term “sole” indicates single, and “proprietor” refers to the owner, meaning that one individual owns and manages the entire business. This individual has complete control over all operations and decisions but also bears full personal responsibility for the business’ debts and obligations.

While it isn’t mandatory for sole proprietors to have a current account, the majority prefer to use one for their businesses. The reason is simple – current accounts offer multiple benefits, tools, features, and services that are crucial for effective business management. Let’s understand more about these advantages in detail below.

Separation of Personal and Business Finances

In a sole proprietorship, the business is not legally distinct from its owner, which means it is easy for personal and business transactions to get mixed up. However, this can create significant challenges, especially for tracking expenses, calculating profits, or filing taxes.

A dedicated current account for sole proprietor establishes a clear financial boundary. This separation simplifies financial management and helps with better organisation and accuracy during audits and financial reviews.

Unrestricted Transactions

Businesses thrive on the ability to transact freely without limitations, and a current account is specifically designed to handle a higher volume of transactions. This capability allows businesses to operate efficiently and manage bulk transactions, frequent deposits, and multiple withdrawals without facing additional charges.

In simple words, this lack of transaction caps allows business operations to flow smoothly and continue with better flexibility.

Interest Earning Opportunity

Typically, current accounts do not earn interest due to their high transaction volumes. However, the Indus Select Current Account by IndusInd Bank offers an opportunity to earn interest on surplus funds. Let’s say the threshold is ₹20,000 – any amount above this limit will be automatically transferred to linked fixed deposits, where they will earn higher returns.

If the account balance is insufficient for a transaction, the system will automatically sweep the required funds back into the current account. The most impressive feature is that there is no penalty for partial withdrawals.

Look at the additional benefits of this digital current account:

Start the journey today with a 100% online current account opening process!

Overdraft Facility for Business Continuity

An overdraft facility allows business owners to withdraw money even if their current account balance is zero (up to a specified pre-approved limit). This can be useful when unexpected expenses come up or when there is a temporary shortfall in cash flow.

By offering funds when needed, the overdraft facility ensures that critical business operations, such as paying suppliers or covering payroll, can continue uninterrupted.

Ease of Obtaining Business Loans

Having a current account is frequently a pre-requisite for obtaining a business loan. Banks use the transaction history within these accounts to assess a business’ financial health and cash flow patterns.

An active current account with a responsible transaction record can significantly boost a business’ credibility and creditworthiness in the eyes of the bank. This established financial relationship may also simplify the loan application process and increase the chances of approval.

Additional Banking Facilities and Support

The best current account for sole proprietors will also offer a range of additional banking services and support tailored specifically to business needs. These include:

• Instant current account opening process
• A dedicated mobile banking app
• Free cash deposit facility
• Cash management services
• Smart alerts for transactions and account activity
• 24/7 customer support via phone, email, and chat
• Doorstep banking facilities for cheque and cash collections and delivery
• Specialised loan products tailored to business needs

The availability of such facilities ensures that sole proprietors get to focus on growing their businesses, knowing their banking needs are well managed.

Also Read: Top Factors to Consider When Choosing a Current Account

Open a Current Account for Your Sole Proprietorship Today

The preference for current accounts among sole proprietors is driven by multiple factors. These include the necessity for unrestricted transactions that support dynamic business operations, the financial safety net provided by overdraft facilities, and the separation of personal and business finances, which simplifies management. The potential to earn interest on surplus funds and the ease of obtaining business loans further increases the value of current accounts.

Indus Select Current Account combines all these advantages with the added benefits of dynamic cash deposit limits, doorstep banking services, free funds transfer via RTGS/NEFT/IMPS, and an instant account opening process.

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Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.