How to Deal with Low Balance in Your Current Account?

Posted on Monday, February 12th, 2024 | By IndusInd Bank

For any business, having robust cash flows and optimizing working capital is crucial for smooth operations and growth. However, several businesses struggle with low or negative balances in their current accounts at times, restricting their ability to meet financial obligations and invest for the future. Let’s delve deeper into understanding the key reasons behind the current account deficit for Indian businesses and explore effective strategies to improve the situation. 

Reasons for low business account balances 

Slow collection of receivables is a major reason that strains business cash flows when customers delay payments. This is a common problem faced by many companies operating in B2B sectors where the credit period extended to other businesses can often stretch beyond 30 days. Without timely recovery of invoices, incoming cash flows dry up, putting pressure on current accounts. 

Another key factor is the lack of working capital planning that leads firms to rely excessively on credit purchases from suppliers before receiving payments from their own customers. Over-reliance on vendor credit without analyzing the cash conversion cycle can quickly strain liquidity, especially if demand is low. Unexpected cost overruns, delays in projects, or expenses beyond projections drain unforeseen cash from accounts. Without adequate buffers, this leaves little room for meeting other obligations. Additionally, inefficient inventory management practices like overstocking of slow-moving items tie up precious working capital unnecessarily until items are eventually sold. 

Charges related to maintaining low balances in a current account 

In addition to regular charges for maintaining and operating a current account, businesses may face additional fees if they allow their account balances to fall too low. These penalties aim to encourage customers to properly manage cash flows and maintain adequate balances. Depending on the type of current account, some key charges related to low balances include –  

Non-maintenance charges: Similar to minimum balance fees, banks may charge a penalty each month or quarter if the average balance is not maintained. This incentivizes keeping sufficient funds in the account.  

Cheque bounce charges: Businesses are also at risk of cheque bounce charges if their current account balance falls too low. If a cheque is presented for payment but the account lacks sufficient funds to cover it, the bank may return the cheque unpaid. In addition to fees charged by the bank, there can also be penalties imposed by law for cheque bouncing. 

Maintaining adequate balances helps businesses avoid these types of charges and penalties. Proper cash flow management and working capital planning are important for keeping current account funds at healthy levels. 

How does overdraft help in case of a balanced current account deficit? 

Many banks, like IndusInd Bank, offer an overdraft facility on current accounts to meet short-term funding needs. This allows customers to borrow up to an agreed limit even if their account balance dips below zero. Interest is charged on the negative balance amount. Overdrafts help avoid cheque bounce fees but come at a higher interest cost. IndusInd Bank offers various current account packages for businesses with overdraft facilities and other features. 

Conclusion 

Maintaining a healthy balance in a current account is crucial for businesses to avoid penalty charges and meet their financial obligations smoothly. IndusInd Bank offers various current account packages catering to different business needs. Entrepreneurs can consider opening a current account with IndusInd Bank to enjoy facilities like digital payments, higher number of transactions allowed, and attractive interest rates on balances maintained. The bank provides a hassle-free online current account application process to open a current account from anywhere. So, why wait? Open your current account today! 

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.