If you either have a business checking account you aren’t using regularly or are dissatisfied with your current bank, you might need to close your business bank account. This allows you to avoid dormant account fees. We’ll cover how to close a business checking account in eight steps. This process will ensure minimal impact on your business and limit any disruption to your clients and customers.
If you’re looking to change business bank accounts, Bank of America is a good choice. You can get up to $500 in bonus cash back and statement credits with a new account and qualifying actions. Visit Bank of America for more information.
Step 1: Open a New Business Checking Account
As long as your business isn’t dissolving, you’ll need a new business checking account, one that serves your business needs, before closing your old one. If you haven’t chosen a new bank, check out our list of the leading small business checking accounts. When you pick one, see our guide on how to open a business bank account.
Bank of America is an excellent choice for a new business bank account, with up to $500 in cash back and statement credit bonuses with a new account and qualifying activities. Check out our Bank of America business checking review to learn the features of its two accounts.
Step 2: Ensure All Outstanding Checks Have Cleared
When closing company bank accounts, you must ensure that all issued checks have cleared your account before closing. Once your account is closed, the bank will return any checks that arrive at the bank. This could delay payments to customers and vendors, cause aggravation, and possibly damage your business.
Once you have your new business checking account, start issuing checks from the account as soon as possible. If you have the finances to have some overlap between the opening of your new account and the closing of your old account, this should give you ample time for all checks to clear.
Step 3: Transfer All Automatic Withdrawals to New Account
Not only do you need to ensure that all checks clear your account, but you also need to see to it that any recurring automatic withdrawals from your old account are transferred to your new one. You should keep a master list of these withdrawals as part of your business accounting, so it should be easy to make sure they all get moved before closing the account.
Like checks, any auto withdrawals that hit your account after closing will be returned unpaid, which could cause problems for your business.
Step 4: Gather All Documents Needed for Account Closing
There will be several documents you want to have on hand before closing your account. It includes information the bank will need to process the closing. Those documents could include:
- The name of your business
- The address of your business headquarters
- Business incorporation/partnership documents, which should include banking details, registration information, incorporation or partnership date of formation, and business structure
- Information detailing who has the authority to open and close accounts
- Information about any outstanding debts to the bank, if applicable
- A letter formally requesting the closing of the account, the accounts being closed, and where the funds in the account are to be transferred
Most of this information is similar to what you used to open your new business checking account.
Step 5: Determine Who Must Initiate Account Closing
If your business is a sole proprietorship or a partnership, figuring out who has the authority to close a bank account should be straightforward. However, it may be a little more complicated if your business is structured as a limited liability company (LLC) or a corporation.
Your company’s business organization documents should state who has authority to conduct financial transactions, including opening and closing accounts. It may be one singular person, or it may be a group of people. Find out who is responsible, and make sure they sign your formal request letter.
Step 6: Have Authorized Persons Notify the Bank of Account Closing
Once you have the formal request letter signed by all authorized person(s), it’s time to send it to your financial institution to close the account. This can be done by mail, email, or in person at a branch.
Depending on your bank, you may have to complete the closing process in person at a bank branch. For online-only banks and other large corporate banks, you may be able to handle the whole process over the phone or online.
In some cases, the letter may be enough to close the account, with the bank either transferring the funds electronically or sending you a cashier’s check in the name of the business.
Your old bank might make you repay debts owed to the bank before closing the account. You should do this before transferring funds to your new account.
Step 7: Transfer Funds From Closing Account to New Account
This step can be done before closing or when the account is closed. As long as you have ensured all checks have cleared and auto withdrawals have been moved to your new account, you can transfer funds to your new account at that point.
Regardless of whether you transfer funds before the account is closed or at closing, there could be wire transfer fees involved.
Step 8: Finalize Account Closing
The final step is to ensure the closing is finalized with your old bank. This is completed once you have signed whatever documentation they require to close the account and the funds have been transferred to your new account.
To assist you, we created a checklist for you to reference when closing your business checking account.
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You may also be interested in checking out our guide on how to change business bank accounts to learn the process and the right time to switch.
Other Considerations When Closing a Business Checking Account
While the steps above should cover almost every potential issue that might arise when closing your business checking account, there are a couple more things you might want to consider when closing an account.
What To Do if Your Company Is Dissolving
When your company dissolves, you must decide what to do with the remaining business finances. This should be spelled out in your partnership or corporation agreement to avoid any issues wrapping up the company.
Generally, your bank should allow you to leave your business checking account open long enough to allow the final checks to clear and to process any end-of-business expenses that might arise. You generally won’t be able to do new business with the account.
You should contact your bank immediately and let it know when your business dissolves. With the assistance of your business organization agreement, it should be able to help you through the final days of your business before the account is closed and funds are distributed.
If your business dissolves, any existing business lines of credit with your bank will likely go from a revolving credit account to an amortizing loan. All parties in the company will likely be liable for the debt, so keep that in mind.
Avoid a Dormant Business Checking Account
One reason you might close a business checking account is that you simply don’t use it anymore. It’s possible you opened it to take advantage of some introductory cashback or APY offer but never used it as your primary account.
Once you go 12 months without a transaction, your account will become inactive. After 24 months, it will become a dormant account. Once that happens, the funds will be turned over to the state, and the account will be closed. You can petition the state to return your funds, but it is much easier to close the account if you’re not using it.
Differences Between Closing a Business Checking and Business Savings Account
Closing a business savings account is much easier than closing a business checking account. Because savings accounts have limited transactions, it should be straightforward to ensure all withdrawals are accounted for before closing the account.
Plus, if you have a business checking account at the same bank and aren’t closing that account, you can simply transfer the funds from your savings to your checking and close the savings account. You can do it for free if you haven’t exceeded your monthly transaction limit on your savings account.
Potential Consequences When Closing a Business Checking Account
Closing your business checking account can present some issues, so it’s best to know how to handle these situations.
1. Your bank may charge fees or subject your account to penalties.
Closing business accounts before a prescribed period set by the bank can result in paying an early account closure fee. Most banks charge this fee if you close your business checking account within 90 days from the opening date. Other banks will only drop this fee if you keep your account open for 180 days.
Even if you already notified the bank about closing your business checking account, the closure may take some time. You may still need to pay the monthly service fee if your account remains open within the statement cycle.
2. Bank account closure delays can occur even if you want to close your business account immediately.
Some of the reasons for an account closure delay can result from pending transactions due to uncleared checks, miscalculations of the balances, or incomplete documents. When this happens, you need to review all the bank account closure requirements, submit the necessary documents, and speak with your bank representative to ensure the account closure is correctly processed.
If the account is still active after a few weeks, you can contact the customer service team or report the situation to the bank manager for a prompt resolution.
Frequently Asked Questions (FAQs)
Once you close your business, you’ll have to close your business bank account. Your bank may let you keep the account open long enough to allow any final transactions to clear. Once that happens, you will have to close the account. Ensure you have a plan to handle any leftover business finances from your account once it’s closed. The bank will likely issue you a check for the remaining account balance.
No, closing a business bank account doesn’t hurt your business or personal credit—so long as you aren’t overdrawn at the account close. If you have a negative balance due to nonsufficient funds or overdraft fees, and you don’t settle those when the account closes, the bank may sue you or your business to recover those funds. If those funds end up in collections, it could show up on your credit report, hurting your score.
When you close a business bank account, the account is no longer usable. Any transactions after the account is closed will be returned, so ensure all outstanding transactions have cleared before closing the account. The people with signing power on the account will likely have to sign off on closing the account. If funds are left in the account, the bank will cut a check in the business name when the account closing is finalized.
Bottom Line
Generally, closing a business checking account is a straightforward procedure. Of the eight steps listed, four are critical. Ensure you have a new account open before closing your old one and see to it that all outstanding checks have cleared. Check that automatic withdrawals are changed or canceled and, finally, know who in your business has the authority to close the account. If you follow the steps in this guide, you should be able to close your business checking account with minimal impact on your business.
