Why businesses need secondary and backup alternative accounts
In an unstable business environment, with strict regulations and growing compliance requirements, companies risk facing sudden blocking of corporate accounts — a situation that can halt all operational activities within hours.
The consequences of this will be:
- failure to meet financial obligations;
- accrual of penalties and fines from government agencies for late payments;
- suspension of deliveries;
- non-payment of wages;
- inability to use assets for business purposes, as funds from the account can only be transferred to accounts with the same name;
- extensive reputational damage.
The solution to this problem is to diversify bank accounts, i.e. to open second and reserve alternative accounts in various traditional banks and neobanks. This is a critically important element of the strategy for managing operational risks and ensuring business continuity.
The main threat: bank account freezing and its consequences
The blocking of a corporate account is one of the most serious operational risks for any business. When a bank suspends account operations, the company instantly loses the ability to conduct critical payment transactions.
The reasons for blocking can be varied and are not always related to actual violations on the part of the company. Banks are required to monitor transactions under anti-money laundering and counter-terrorism financing legislation. Automated financial monitoring systems may consider transactions that are actually legitimate to be suspicious, for example:
- a sharp increase in turnover during seasonal sales;
- large one-off payments;
- transactions with counterparties from certain jurisdictions;
- frequent transfers between related companies.
Even if a company conducts completely legitimate activities and complies with all regulatory requirements, an account may be blocked due to technical failures in the bank's systems, errors in compliance verification algorithms, or the actions of third parties — for example, if a company's counterparty is subject to sanctions or investigation. The proceedings can last from several days to several months, during which time the business remains without access to its own funds.
Account diversification as a risk management strategy
The basis of financial risk management strategy is diversification — the distribution of assets and operational capabilities among various financial institutions, which minimises dependence on a single source of banking services.
Opening secondary and backup alternative accounts at different banks creates a financial infrastructure that is resilient to local disruptions and regulatory restrictions. If one bank blocks a company's account, it retains the ability to conduct critical operations through alternative accounts. This allows business processes to continue uninterrupted.
Diversification is not a sign of mistrust in the main bank. It is a standard risk management practice used by major international corporations. Companies that work with several banks at the same time demonstrate a higher level of operational stability and financial maturity.
Advantages of having secondary and backup accounts
We will tell you more about the advantages of diversification.
Ensuring business continuity
Reserve accounts allow you to avoid business interruption when your main account is blocked. The company continues to pay salaries, pay for supplies and accept payments, preventing a chain reaction of problems.
The availability of alternative financial instruments helps to quickly redirect payments and notify counterparties, reducing response times from weeks to hours.
Separation of financial flows
Multiple accounts allow you to allocate funds by area: core business, expenses, taxes, reserves. This simplifies accounting, increases transparency and improves budget control.
For companies with different areas of activity or branches, this division helps to assess the effectiveness of each division.
Protection against banking risks
No bank is immune to technical failures, cyber attacks or regulatory sanctions. In some cases, licences may be revoked.
Distributing funds across banks reduces concentration risk and protects against loss of access to capital. In addition, deposit insurance is often limited to a certain amount per account, so diversification increases the level of asset protection.
Access to various banking services and tariffs
Different banks offer different advantages: low fees, convenient transfers, or integration with accounting systems.
Working with several banks allows you to choose the best terms and reduce costs, while competition between them helps improve rates and services.
Increasing counterparty confidence
Accounts in several reliable banks confirm the company's financial stability. Partners and investors perceive this as a sign of mature risk management and preparedness for unforeseen situations.
Flexibility in working with currencies and jurisdictions
Accounts in different countries provide access to local currencies, reduce fees, and speed up international transfers.
Multi-currency fintech platforms reduce conversion costs.
Strategy for introducing reserve accounts
Diversification must be well thought out. It is necessary to choose a bank and determine the basic principles for using reserve accounts.
Choosing banks for diversification
The key principle of diversification is to open accounts with different banking groups. Opening several accounts with subsidiaries of the same banking holding company does not provide real protection, as regulatory restrictions or technical failures will affect all accounts simultaneously.
It is recommended to distribute accounts among different types of financial institutions: traditional commercial banks, state-owned banks, and licensed fintech platforms. This provides access to different levels of service, technological solutions, and regulatory regimes.
When choosing banks, consider their financial stability, reputation, quality of corporate customer service, convenience of digital interfaces, and availability of specialised products for your industry.
Active use of reserve accounts
Businesses often open reserve accounts that they then do not use. This is a serious mistake. An account without regular transactions may raise suspicions among banks and compliance services, as it looks like a tool for dubious financial activities.
A reserve account must be active. Regular legitimate payments must be made through it, even if they are small transactions. These can be transfers to certain categories of suppliers, transfers of part of salaries, or payments for specific services.
Active use of a reserve account creates an operational history that confirms the legality of the business and reduces the risk of blocking at a critical moment.
Allocation of financial reserves
It is recommended to allocate capital in such a way that the main operating account contains funds for current expenses, while the reserve account contains a financial cushion to cover unforeseen situations.
The optimal distribution structure depends on the specifics of the business, but the general recommendation is not to keep more than 70% of working capital in one account.
Integration of reserve accounts into business processes
Contingency accounts must be fully integrated into the company's operational and accounting systems. Financial staff must have up-to-date access to all accounts, be familiar with the procedures for working with each bank, and be prepared to quickly switch payment flows if necessary.
It is recommended to develop and regularly update an action plan in case the main account is blocked, including step-by-step instructions for redirecting payments, notifying counterparties, and interacting with the bank.
Management of details and communication with counterparties
When working with multiple accounts, it is important to provide key counterparties with information about alternative details. You can specify multiple accounts in contracts, invoices and on your corporate website.
The company must be prepared to promptly send notifications to counterparties with new details in the event that the main account is blocked, in order to minimise the time during which it does not accept payments.
Risks of excessive diversification
Despite the obvious advantages, having too many bank accounts can create additional complications. The more accounts a company uses, the greater the administrative burden on the finance department: it is necessary to monitor balances, track transactions, reconcile statements, and record transactions in the accounting records.
Working with a large number of banks increases the likelihood of errors when specifying details. This can lead to delays in payments or their loss. If each account has a monthly subscription fee, the total cost of banking services increases.
For small and medium-sized businesses, it is optimal to have two or three active accounts in different banking groups. For large companies, this number can be increased to five to seven accounts with a clear distribution of functions between them.
Entrust your financial risk management to the professionals at Intelligent Solution Group
Developing an effective strategy for diversifying bank accounts requires a deep understanding of the characteristics of different jurisdictions, regulatory requirements, and the specifics of how international financial institutions operate. Intelligent Solution Group offers comprehensive consulting services on building a sustainable financial infrastructure for your business.
Our services include:
- Audit of the current financial structure. We conduct a detailed analysis of your company's existing banking infrastructure, identify concentration risks and develop recommendations for minimising them.
- Selection of optimal banks or neobanks. Based on the specifics of your business, the geography of your operations and planned transaction volumes, we recommend financial institutions in various jurisdictions that offer the optimal combination of reliability, functionality and service costs.
- Opening of reserve and alternative accounts. We take care of the entire account opening process, from preparing documents to finally obtaining details and setting up online banking systems.
- Ongoing support. We provide ongoing support on issues related to working with multiple bank accounts, compliance, optimising financial flows and interacting with regulators.
Don't wait until your account is blocked and your business is paralysed. For more details, contact the experts at Intelligent Solution Group.
