Editorial

4 Differences between a merchant account and a business account

As a company owner, you have a lot to keep track of, including many financial paperwork and tools that enable you to perform what keeps your company running, i.e., accept payments from consumers. Of course, if you’re new to the sector or attempting to re-evaluate the tools and suppliers you’re utilizing, the distinctions between bank accounts and merchant accounts may be perplexing. So here’s all you need to know about bank accounts and a high risk merchant account.

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4 key Distinction between Merchant Accounts and Business Accounts

Different Types

There are several types of merchant and business bank accounts available to fulfill the needs of all business owners, whether small or large. Let’s take a look at different types of accounts and see what makes them unique:

Merchant Account and its types

  • Aggregate Merchant Account: This account is shared by numerous merchants simultaneously. These are the most common solutions for small businesses.
  • Dedicated Merchant Account: This merchant bank account is an ISO ( independent sales organization) account. You are the only user of the account with all the merchant account services.
  • High-Risk Merchant Account: It is a payment processing account for companies that are considered at high risk by the banks.

Business Account and its types

  • Business Checking Account: A business checking account enables you to manage all of your organization’s fundamental and critical financial activities.
  • Business Savings Account: A business savings account works along with a business checking account. You may use it to set aside a portion of your company’s profits and earn interest.
  • Cash Management Account: A cash management account (CMA) is a web-based account that functions similar to checking, savings, and investment accounts.

Uses

Business Account

A business account is utilized for all commercial transactions. It allows you to pay for corporate services and business travels. You can also pay your suppliers and your staff and receive money in exchange for goods and services through this account.

Merchant Account

A merchant account, in general, exists to take payments; you cannot withdraw earned funds from it; nevertheless, these funds are afterward moved to your company account, which you may now utilize. Depending on the bank, transferring funds from a merchant to a business bank account might take from a few days to a week.

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Functions

Merchant Account

Merchant services have a dual function:

 a.) They allow your business to accept credit and debit card payments.

 b.) They ensure that consumer card transactions are secure and efficient.

Before the money appears in your company bank account, the transaction pathway begins at the point of sale, when your consumer pays with a credit card, debit card, or other means such as contactless payment. At this point, the payment processor takes over, controlling the transfer of transactional data and ensuring that all the appropriate dots are linked along the route so that the transaction runs quickly and safely.

Business Account

While the role of business accounts is easy and uncomplicated, it is used to keep track of the cash balance, money owed to the firm, money owed to creditors, and employee payroll. The number of accounts varies, but all businesses need business accounts.

Technicalities in Opening a new account

Merchant Account

First, you must locate a reliable merchant account provider, such as the National Merchants Association. It is not set up like a typical business account. A merchant account authenticates every transaction as money flows, unlike a business account. It is an account or partnership with a Visa or Mastercard member bank.

When a consumer makes a purchase, the member bank advances the proceeds from the card to your merchant account with fewer transaction fees. Meanwhile, the member bank must wait for payment from the issuing bank. As a result, by using a merchant account, you may get paid quickly rather than waiting for the banks’ behind-the-scenes verifications.

Business Account

Opening a business account is extremely simple and easy compared to a merchant account. Typically, opening a business account with a fintech company is significantly faster and less expensive than with a high-end bank. Personal and corporate documents and data such as (passport/ID cards), business licenses, and ownership agreements are among the most specific needs. Keep in mind that the requirements for each specific firm may differ. For example, if you’ve newly formed a corporation, the list of needed papers may be less, but the financial provider may want statements from your account.

Conclusion

A merchant account and a business account may seem identical, but they serve distinct purposes. For example, a company that accepts electronic payments will require both accounts.

Unlike a merchant account, a business account serves as the repository for all your company’s cash. Essentially, this account keeps earnings from sales, wages, and invoices. It is critical to note that the business account is your merchant account’s final destination for cash. It retains your money until it is deposited into your company account.

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