Before we explain the importance of bank statement. It is importance to understand HOW BANKS LOOK AT THEIR CUSTOMERS or how banks understand their customers. For bank or bankers, customer is nothing but a reflection of their documentation like:
Passport – For Knowing Nationality of Shareholders
Visa – To understand employment visa and designation
Trade License – To understand Business Activity, Length of Business, Shareholders
Memorandum – To know the powers of shareholders
In the end but most important document comes the Company Bank Statement which is to justify the business transactions of company. Transaction pattern in bank statement supports the overall profile of the company and helps bank to easily approve bank accounts. Also, a good bank statement helps companies from the hassle of regular calls from compliance related to daily transactions.
Important Points Banks Looks for in Statement with Do’s and Don’ts
Although all below points depend on business activity. Still, can be red flag for bank statement.
1. Cash Deposit – Red Flag – Statements or Businesses with high cash deposit raises a red flag for compliance. It’s a known fact, that cash deposit is means of converting dirty money to clean money or we call it from black to white. Businesses which generate a lot of cash are not much supported by banks unless it is supported activity and proper documentation.
DO’S - How much cash is good for an account - Well the answer to that question isn’t that simple. However, as per normal bank policies it shouldn’t exceed more than 20% of total monthly turnover of account.
2. Single Big Value Cash Transaction – Red Flag – Depositing big value cash in one transaction raises an immediate compliance flag of STR (suspicious transaction).
DO’S - It is recommended to deposit regular cash as soon as it is generated rather than holding it and depositing together.
3. Immediate Deposit with Immediate Withdrawal – Red Flag – Account activities which have immediate deposit and withdrawal activities raises a red flag to compliance as it signifies that the cash was deposited by someone and withdrawn by company just to convert black to white or for Hawala.
DO’S - It is recommended not to withdraw full amount immediately after deposit full amount. As per normal bank policies, 75% of deposit should be withdrawn.
4. High Value Local/Domestic Transfers – Receiving funds through local transfers are considered safe as there are easily traceable. However, the points to note here are that the transfer should match your business activity. Also, sometimes the other party might be blacklisted in bank in that case bank will notify you. Make sure next time you do transaction with that party.
5. International Transfer/Remittance – Account statements with high remittances are good for banks in terms of Foreign Exchange Income and Trade Income. However, the documentation in those transaction are difficult to trace for that banks ask invoice and bill of lading.
Don’ts – Make sure your account doesn’t have transactions from Sanction Countries(Iran, Sudan and Syria). In case any transaction from these countries account might close immediately close account with sending the funds back as well.
6. Cheque Return – Accounts statements with cheque returns are not supported by banks. As the company defaulting on payments to its parties are come under strict central bank regulation of any country.
Don’ts – As per bank policy, company shouldn’t have more than 3 cheque returns in one year and more than 1 return in every 6 months. Do’s – Maintain a healthy average balance in the account to avoid any cheque return. And in case if happens due to accounting issues. A good average balance all the time can support the cheque return.
7. Direct Debit Return/Loan Repayment Failure – Banks are very strict in cases of DDS returns as it is a loan of bank and creates a very bad history of the company. Make sure not to default on any loan mistakes by any chance.