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Structure of Bank Accounts for a Nonprofit Organization

Structure of Bank Accounts for a Nonprofit Organization

Managing the bank accounts in a nonprofit can be simple or complex, depending on the size of the organization and the amount of money and assets it possesses. The ideal bank account structure for a nonprofit with financial means of more than a few thousand dollars includes accounts for daily banking purposes, savings, investments, funding and reserves.

Daily Banking

A nonprofit’s daily banking typically requires a checking account, which the organization’s management uses for depositing receivables and payment of all regular costs. The checking account is the central hub of all the nonprofit’s bank accounts, and authorized signatories can usually transfer electronically their site between the checking account and the other accounts. Some banks offer business check cards, which enable the holder to pay bills and make purchases directly from the bank account without needing to write out checks.


If the nonprofit organization has paid staff, it’s helpful to have a separate payroll account into which the full payroll amount is deposited well in advance. Compensation checks are issued or automated payroll is withdrawn directly from the account. Keep a buffer amount in the value of at least one extra payroll in this account to ensure that the organization is able to pay workers on time, regardless of delays in depositing receivables or generating income.

Short-Term Financing

If a nonprofit doesn’t have a dedicated accountant on its staff, it’s easy to lose track of the cash flow, particularly if the organization receives funds erratically from donations, fundraising and grants. A short-term bank finance account supports the organization’s cash flow while it waits to deposit fundraising income, government grants and other contract receivables.

Revolving Credit and Loans

A revolving credit line — whether a separate account or a service offered on the organization’s checking account — helps meet the nonprofit’s needs for cash flow during delays in the funding cycle. Term loans offer the opportunity to pay for purchases such as furniture and equipment over several years at a fixed or variable interest rate. A nonprofit might also qualify for a mortgage loan to purchase commercial premises from which to conduct the organization’s work.

Credit Card

A secured credit card is useful for the authorized signatory in a nonprofit, who may need to make emergency purchases to facilitate the organization’s work. It isn’t always possible to draw a check against the bank account and have it signed by all relevant parties when operations are in full swing. A secured credit card with a strict credit limit makes it possible to operate without incurring larger debt for the organization.

Cash Reserves

A financially efficient nonprofit that can declare a surplus at the end of its fiscal year has funds to carry over to the following year’s financial operations. By allocating a portion of this surplus as an internal reserve, the organization can start building up long-term savings for large purchases. The nonprofit transfers the internal reserve to a separate account, which requires the approval of the board chairman and treasurer to access it.


Investments such as endowment funds allow a stable organization to build up funds for long-term projects to support the nonprofit’s philanthropic mission, such as the expansion of the organization or the purchase of real estate for premises. The directors place investment funds in low-risk, high-performing options recommended by the bank or a reputable financial adviser who specializes in nonprofit investing. Interest recapitalizes annually, which enables the investment to grow. The funds can be accessed only by a majority board vote.

  • Nonprofit Accounting Basics: Payroll
  • Carver Federal Savings Bank: Nonprofit Banking
  • Nolo Law for All: Getting a Secured Credit Card

Tracey Sandilands has written professionally since 1990, covering business, home ownership and pets. She holds a professional business management qualification, a bachelor’s degree in communications and a diploma in public relations and journalism. Sandilands is the former editor of an international property news portal and an experienced dog breeder and trainer.

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