Closing a Business Bank Account: When and How to Do It

When to close your business bank account

Close the business bank account after every payment in or out of the business is finished. Official closing checklists list the bank account as a late, additional step. The California Franchise Tax Board, for example, puts "closing out business checking account and credit cards" among its additional steps, after the tax filings that end the entity.

The reason is practical. A shutdown still moves money for weeks or months after operations stop:

• Final payroll and payroll taxes. The IRS says employers must pay final wages and make final federal tax deposits. It warns that the Trust Fund Recovery Penalty may apply if withheld income, Social Security and Medicare taxes are not deposited.
• Final tax returns and balances. The IRS says it cannot close a business's IRS account until all necessary returns are filed and all taxes owed are paid.
• Outstanding checks you have written that payees have not cashed yet.
• Money still owed to you: customer receivables, deposits being returned, refunds and proceeds from selling equipment or other assets.

Close too early and a final tax payment can bounce or a customer payment has nowhere to land. Leave the account open and forgotten, and it can eventually be treated as unclaimed property (see below).

Before you close the account

1. Settle what will hit the account

Bank of America's closing instructions, which apply to business checking as well as personal accounts, tell customers to:

• cancel recurring payments and tell those companies the account is closing;
• tell payees of any outstanding checks;
• make sure all transactions have posted and none are pending before asking to close;
• make other arrangements for direct deposits, which it will not accept into a closed account;
• bring the balance to zero, transferring money out a few days ahead because this can take a while. A negative balance has to be paid in full before the bank will close the account.

Chase gives similar advice in its guide to switching business accounts: keep the old account funded until pending transactions clear, move recurring payments and direct deposits, and update payment processors, ecommerce sites and accounting software that hold your bank details.

2. Deal with linked services first

Card processing and remote check deposit are often tied to the deposit account. For business accounts, Bank of America says to contact its Merchant Services team before closing if a merchant account is linked, and the Remote Deposit Online help desk if that service is linked. Check every payment tool that pays into the account, not only the bank's own.

3. Download statements and records

Bank of America tells customers to download any statements they need because they won't have access once the account is closed. Chase says to download past statements and then a final statement or closure confirmation.

The IRS lists deposit information, canceled checks or other proof of electronic payment, and account statements among the supporting documents a business should keep. How long to keep them depends on the period of limitations for the related tax return, which our records-retention guide covers.

How to close a business bank account

There is no single legal procedure. Each bank sets its own process in its account agreement, so ask your bank what it needs. Here is what two large banks publish.

Bank of America

• Ways to close: in person at a financial center, by phone (800-432-1000), or by mail.
• By mail: include the name, address and account number; all account owners must sign; say whether any balance should go to another Bank of America account or be mailed as a cashier's check.
• Notary: if the balance is more than $25,000, the mailed letter must be notarized.
• Confirmation: the bank says it emails when the account is officially closed and mails a final statement.

Chase

Chase publishes a step-by-step process for closing a business line of credit: request a payoff statement, pay the balance to $0, then return an Authorization to Close form signed by an authorized signer. Chase notes that paying the balance to $0 does not by itself close the line. Its business deposit-account closing steps were not published on the pages we read; contact the bank or your relationship manager.

What banks commonly ask for

Expect to prove you are authorized to act for the business. Bank of America requires every account owner's signature on a mailed request. Chase requires an authorized signer for its line-of-credit closure. If the people who opened the account have left, sort out signing authority before the last day of the business, not after.

Close business credit cards and credit lines too

Credit products close separately from the checking account. Pay them off and close them, or a forgotten card can keep billing a subscription to a business that no longer has a bank account. Chase's line-of-credit steps show why to ask for a payoff statement: the balance shown online may not include all accrued interest and fees. Chase also says to cancel scheduled payments, and that a line of credit can't be closed without its authorization form.

Business accounts have fewer consumer protections

Many familiar rules on unauthorized electronic transfers come from Regulation E. Its definition of "account" in 12 CFR 1005.2 covers accounts "established primarily for personal, family, or household purposes." A business account generally falls outside that definition, so your protections come mainly from the bank's business account agreement. That is another reason to stop recurring debits and confirm the final statement shows nothing unexpected.

What happens if you leave it open

An inactive account with money in it does not stay with the bank forever. California's State Controller says holders, including financial institutions, must report and deliver property to the state after there has been no activity on the account or contact with the owner for a period set in law, generally three years. Bank accounts are the first item on its list of common unclaimed property. Other states have their own rules and dormancy periods.

An open account can also keep charging monthly fees. Those fees can drain a small balance or push it negative, and the bank will want a negative balance repaid before it closes the account.

A simple order for the last month

1. Pay final wages and make final payroll tax deposits.
2. Pay final sales, income and franchise tax balances and file the final returns.
3. Collect receivables and the proceeds of any asset sales.
4. Pay remaining creditors, then make any final distribution to owners.
5. Cancel recurring payments, update or close merchant services, and wait for every transaction to post.
6. Download every statement, then close the account and keep the final statement or closure confirmation.

Distributions to owners come after creditors, so the account is the last place the business's money passes through.

Common questions