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Business Accounts vs Merchant Accounts

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedJan 20222 min read

There are so many things to do when you’re starting up a new business, from registering your company to acquiring permits and of course, setting up bank accounts. It goes without saying that you’ll need a bank account to accept payments from your customers, but many new business owners are unsure of the different types available to them. In fact, you’ll need to open up not only a business account but also a merchant account, and these could even be with different banks.

The term ‘business account’ is quite a broad definition, including a range of different banking products that companies and sole traders need. Put simply, they are any accounts that are used to conduct commercial transactions, including those for expenses, investments, loans. A merchant account, on the other hand, is more specific, and is used to accept payments from customers. Read on to find out more about business accounts vs merchant accounts and why they’re both important for your business.

Business accounts

A business account is an account that is dedicated to business transactions when running a company. It’s a legal requirement for any limited company, and sole traders can choose whether or not to open one. A business account is yours to control, just like a personal bank account. You can make withdrawals or deposit money when you want, and you can freely make payments from this account. Just like a personal account, it can offer cash and cheque handling, debit cards and an overdraft to support your financial transactions.

There are two main differences between a business account and a personal account. Firstly, many banks will not allow you to conduct business transactions using a personal account, and it’s also a legal requirement that any limited company should have a business account. Secondly, you will be required to pay fees on a business account.

Merchant accounts

Now that you know about business accounts, you’re probably wondering about merchant accounts vs bank accounts for businesses. Well, a merchant account is another kind of account that businesses must have, but its function is much more limited than a business or personal account.

In short, they allow you to accept online credit or debit card payments and receive funds directly through your website. In this process, the customer’s details are sent to the provider of your merchant account, and the customer’s bank account will confirm whether there are sufficient funds. If the payment request is accepted, then funds are sent to the merchant account after a few days, and various small fees are deducted.

This begs the question: why can’t money from card payments go directly into the business account? Well, it does eventually make its way to your business account, and the merchant account just acts as an intermediary. In other words, it is a holding account that protects funds while the payment is being processed.

One of the key differences is that you cannot control the funds that are in your merchant account. Rather, these are under the control of your bank. This means that you cannot pay in or withdraw money from a merchant account, and you cannot move the funds to a different account manually.

Merchant accounts vs bank accounts

What are the differences between merchant accounts and other accounts? Firstly, they are a requirement for any businesses wanting to operate online and must be used in conjunction with a business account. Just like regular business accounts, they will charge regular fees for usage.

The most important difference is that the funds in merchant accounts are out of your control. You cannot move, withdraw or deposit any money to or from your merchant account.

If you’re unsure whether to open a merchant account, consider how you want to conduct your business. For those who are happy to operate entirely in brick-and-mortar shops, a merchant account is not necessary. However, as more and more consumers are shopping online, you may be missing out on sales by doing this.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.