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Can you run your business bank account 100% electronically?

September 27, 2011

Here’s an interesting challenge: in an age when you can run your business virtually 100 per cent electronically, can you do all of your banking without ever touching a piece of paper?

The Internet and email are now so developed that many small businesses run with very few bits of actual paper moving around.

Over the last few years, the desire to cut costs and go green has seen many bigger and older businesses try to reduce the amount of paper they generate. Some utility companies like British Gas offer you a small amount off your bill if you opt for paperless statements (cynics would say they give you back a lot less than they save on paper, printing and postage).

Even Her Majesty’s Revenue & Customs (HMRC) is getting in on the act. It’s heavily encouraging online submissions of VAT returns and other business & personal returns.

If the banks had their way, you’d be doing everything electronically. It’s cheaper for them if you deal directly with computers rather than expensive counter staff.

Certainly some banks go as far as “banning” you from the counter. If you use Abbey’s free banking forever business account, you can only pay in money through a cash machine or by post – not over the counter.

So is running your bank account without paper a sensible idea to speed up transactions, or are you storing up problems for the future?

Well, looking at paying money in, doing that electronically is pretty easy. If you were to ban clients from paying by cash or cheque, they could still pay using credit and debit cards, or direct from their bank account.

Virtually any business can accept cards these days without always needing an expensive machine or online payments provider. Just use a low cost service like Paypal or Google Checkout.

Client can also make payments directly to you using BACS, where they literally transfer money from their account straight to yours (BACS stands for Banks Automated Clearing System). If it’s a regular payment they can set up a standing order – that’s an instruction from them to their bank to pay you an amount on a regular basis.

It is also possible to request cash from clients’ bank accounts using Direct Debits, but this can be an expensive and difficult scheme to get into, especially if you run a small business.

The ‘Faster Payments’ (FP) system, which was introduced back in May 2008, has also speeded up the time it takes to transfer money between accounts. The FP system has 11 members (as of November 2011), and can enable payments to be made between member banks on the same day (at no extra cost to the customer).

As for paying money out, all of the electronic collection methods are ways that you can pay bills without needing paper – cards, BACS, standing orders and Direct Debits.

Because you are in control, it will be easier to pay your bills without ever writing a cheque. Few businesses don’t offer the option of paying bills electronically.

So, that leaves just one part of the banking process firmly stuck on paper: bank statements.

Yes you can get them from your online banking system and download them to your computer.

But ironically, despite encouraging less use of paper in its own returns, HMRC prefers it if you keep paperwork. Many accountants say that if your business is ever investigated for tax or VAT, you will be better off having a stack of paper to hand over, rather than several hundred PDFs.

And that means bank statements as well. Plus you’ll find that if you are ever asked to produce a bank statement as a reference for a supplier or as proof of identity, a print off from the Internet is unlikely to be accepted.

So it seems that 90% of banking can certainly be done without paper, and as soon as someone somewhere has figured out how to replace paper statements with 100% secure digital versions, we’ll see those wiped out too.