Looking for to open a bank account for your drop shipping business? Then keep reading on as we will uncover how to open multiple global bank accounts to cover the banking needs of your international operation.
Why Drop Shipping Is A Global Operation?
As drop shipping business is not holding any inventory it relies on suppliers or manufacturers who handle the storage, packaging, and shipping of the products directly to the customers. The supplier, manufacturer or shipping partner and the customer are most probably not from the same country. Manufacturing is cheap in some parts of the world and clients that are willing to pay for goods more are based somewhere else.
Why Having A Bank Account For Drop Shipping Is Important?
There are several reasons why having local or global bank account or a mix of those two is important. A lot of drop shipping platforms offer wallet integrations such as PayPal and others but having a bank account in the name of your company and able to collect or send payments is vital for these reasons:
It is cheaper. Having a local or global bank accounts is much cheaper than using online payment wallets like PayPal or Payoneer. For example, PayPal has excessive fees for currency exchange and international payments. Many businesses that reaches a certain scale, will be looking to optimize their costs that looked insignificant when there was no scale. One of those costs is obviously payments and currency exchange. We have already covered steps on how to optimize payments and FX here and also how to choose a right payments provider here. If you would like to get an up to date list of global and local banks that are drop shipping friendly, contact us and we will share it with you.
It is more credible. Having a dedicated business bank account can enhance your business's credibility when making payments to overseas suppliers and vendors, or shipping partners. It's a sign that you are running a legitimate and well organized business.
It is more regulatory compliant. Many countries have legal requirements that mandate businesses to have a local bank account. Moreover, some local partners may only settle payments to local bank accounts instead of online wallets. For example, if you wish to sell products using Afterpay or Klarna in Australia, you will only be able to receive settlements from your sales into a local dedicated bank account. A similar story is with paying local taxes and VAT. Those can only be paid from a bank account and often with a local credentials (for example IBAN). IN some instances, local vIBAN can be a solution and more about those you can read here.
Think about accounting and bookkeeping duties. A business bank account simplifies bookkeeping and accounting processes. You can easily track all financial transactions related to your drop shipping business, making it easier to prepare financial statements, pay taxes, and evaluate the health of your business.
How about payment processing. To receive payments from customers via debit, credit cards or open banking solution, you'll need a payment processor or payment gateway. This is especially important if you accept online payments, as most payment processors and platforms, such as Stripe and Adyen, require a business bank account to link to your e-commerce store.
It helps with financial management of the company. A business bank account can offer you tools and features specifically designed for business owners, such as business credit cards, lines of credit, and financial management software integration and treasury management. These can help you manage your finances more effectively and potentially access capital for growth or reduce financial risks such as currency exchange rate fluctuations, which we talked about in this article.
How To Open Bank Account For Drop Shipping Company? Simple Steps.
As always, opening a bank account for any company, including a drop shipping company, involves several simple steps that we are going to discuss below. If you have any questions or would like to get an up to date list of banks that are drop shipping friendly, contact us and we will send it to you.
Choosing a company structure. Determine the legal structure of your drop shipping business. Common options include sole proprietorship, partnership, LLC (Limited Liability Company), or corporation. Your choice may affect the type of bank account you can open. For example, if you incorporate a company in an offshore jurisdiction, it will be harder to open bank accounts. The structure choice depends on the size of your business operation, the larger the size, more complex the structure involving local subsidiaries and probably a holding.
Choosing a bank. Research and choose a bank that suits your business needs. Consider factors like fees, the bank's online platform or mobile app, services offered, and any specific requirements they have for business accounts. You may also find this article useful where we discuss it more broadly.
Preparing the documents. Any bank in the world will require a set of documents to open an account. Here is a list of most common documentation that is required for bank’s due diligence process:
· Memorandum and Articles of Association; or Articles of Incorporation
· Certificate of Registration/Incorporation;
· Share certificate(s); or Any commercial registry document containing information on the beneficial ownership
· An ownership organisation chart;
· IDs for all Ultimate Beneficial Owners
· Proof of the trading address: Bank statement or Utility bill (water, electricity, gas, landline phone) dated within 3-6 months.
· Business plan or explanation of business nature
· Purpose of the account, expected monthly volumes, currencies and countries involved – explanation letter or document. This part is very important as your commercial terms will be based on your business nature/volumes/operations.
· VAT registration
Signing agreements and commercial terms. Review and sign any agreements or contracts provided by the bank, including the negotiated commercial terms. These agreements outline the terms and conditions for your business account.
Receiving the account details. After your application is approved, the bank will provide you with your new business bank account details, that you will use for invoicing and other processes.
Setting up online or mobile banking. Most banks offer online and mobile banking services. Be sure to set up online access to manage your account, monitor transactions, and make electronic transfers as well as consult with banks representatives regarding further services such as treasury or FX management.
Conclusion
Opening a bank account for your drop shipping business is crucial for managing finances, ensuring compliance with legal and tax requirements. It's essential to follow the specific procedures and requirements of the bank you choose, and it's advisable to consult with a financial advisor or attorney for guidance, especially if you have complex business needs or legal structures.