Why would you open a trust account in Australia?
A trust account is a bank account that certain people in Australia can only open. These include financial planners, company directors and trustees, amongst others. Trust accounts are often used for transferring money between two parties (such as the payment of goods or services), depositing funds into an organisation’s control, or holding money belonging to another person until that person requests its return. Use this link for more info.
Trust accounts are not restricted to banks; credit unions also operate under these kinds of rules. However, most financial institutions require the ability to transfer money rapidly, which means you would need to become a signatory on your trustee or corporate banking account if you wish to open one with them.
Establish company accounts
A company may need to establish a trust account to receive money from clients or customers. It will enable the business owner to deposit funds into their account to reflect the balance accurately. The primary advantage of doing this is that all transactions involving client fees are kept separate from any other activities associated with the company.
Avoid negative balances
Negative balances can occur when there is less money in an account than there should be at any given time, which would typically mean that the business had spent more than it received. If this occurred regularly, it could be detrimental to their reputation and disable them from trading effectively. Companies open trust accounts for depositing funds to avoid this situation, which will result in a positive balance.
Ensure money is not misused
You can only spend money held in trust accounts with the party who controls the account’s permission (i.e., the trustee). If anyone else wanted to make a payment, they would need to get signed approval from this individual or organisation first. It helps companies prevent funds from being taken without authorisation and minimises any risk of financial loss.
Keep enough cash reserves on hand
One of their biggest problems for many small businesses is dealing with insufficient funds when there are bills to pay or other expenses in need of covering. Without sufficient funds in reserve, you could find yourself struggling to make those payments and even close down. To avoid this, some companies will keep a trust account open with a financial institution that always pays the total amount of its available balance if they ever run into short-term cash flow problems.
Find investment capital more easily
Trust accounts can be used as collateral for things like business loans, which would enable owners to obtain additional funds more cheaply than through other types of borrowing. As long as you meet your loan repayment obligations on time, the lender or investor won’t have access to your money without first receiving it from the source you borrowed it from (i.e., the trustee). They can rest easy knowing their cash is safe and earning interest for them in the meantime.
Invest more strategically
By setting up a trust account, you will require that most or all money transfers go through this one place (i.e., the bank) and then distribute it accordingly based on instructions given by the trustee. It enables you to plan your cash flow with greater accuracy and optimise investments in things like equipment or new staff. It also minimises the chance of having money tied up in various accounts, which you can’t touch, but instead makes it easier for you to control everything directly.
More efficient payroll management
Another benefit of trust accounts is that they make it possible for companies to monitor costs associated with their business closely. If they receive funds, the manager may choose to deposit them right away into an account specifically designated to be used for this purpose (i.e., a trust account). Having all expenses come through one place means there’s no need to track which employee had what expenses reimbursed on what date since most invoices received will be recorded and paid automatically.