By
August 24, 2026
What Is Source of Funds and Why Do Banks Ask UK Companies for It?
Source of funds (SOF) means where the money used in a transaction or entering a business account actually comes from. Banks and payment providers may ask a UK limited company to explain and, where necessary, provide evidence of the origin of its funds.
Source-of-funds checks form part of the wider Know Your Customer (KYC), Customer Due Diligence (CDD) and Anti-Money Laundering (AML) framework.
For a UK company, the source of funds could be customer payments, trading revenue, shareholder investment, director funding, a business loan or proceeds from selling an asset.
Source of funds refers to the origin of specific money.
For example, if £50,000 is transferred into a UK company's business account, the financial provider may want to understand where that £50,000 came from.
The answer could be:
The provider may then request documents supporting that explanation.
Banks and regulated payment providers have obligations designed to prevent money laundering and other financial crime.
Understanding where money comes from can help a provider determine whether transactions are consistent with what it knows about the customer and the purpose of the business relationship.
UK government guidance on customer due diligence specifically identifies obtaining information about the source and origin of funds as something that may be required when establishing or understanding a business relationship.
A source-of-funds request can occur when opening a business account or later during the relationship.
For example, a provider might request additional information when:
A request for source-of-funds evidence does not necessarily mean there is a problem. It can simply form part of the provider's normal due diligence.
The appropriate evidence depends on where the money came from.
Examples can include:
The objective is to create a clear connection between the stated source and the money received.
For an established UK company, customer revenue is often a straightforward source of funds.
For example, suppose your company receives £20,000 from a business customer.
Supporting evidence could potentially include:
Customer contract → Invoice → Customer payment → Business bank account
Together, these documents can help explain why the payment was made and where it originated.
A newly incorporated company may not yet have significant customer revenue.
Its initial funds could instead come from a director or shareholder.
For example:
Director's personal funds → Transfer to UK company → Company working capital
The provider may ask where the director obtained the money, particularly if the amount is significant or the circumstances require additional due diligence.
Yes. Directors or shareholders can provide funding to a company in legitimate ways.
Depending on how the transaction is structured, it could potentially be recorded as:
The company should maintain records explaining the transaction and its accounting treatment.
If the funds originate from a loan, the provider may request supporting evidence such as:
The evidence should demonstrate the relationship between the loan and the funds received by the company.
These terms are related but have different meanings.
Source of funds asks:
Where did this particular money come from?
For example: £30,000 received from a customer under a commercial contract.
Source of wealth asks:
How did the individual accumulate their overall wealth?
Examples might include:
Source-of-wealth checks are generally broader than source-of-funds checks.
In higher-risk situations, enhanced due diligence may require a regulated business to establish the source of funds and source of wealth of the customer and, where relevant, beneficial owners.
This can arise depending on the customer's risk profile and circumstances.
It does not mean every UK company opening a business account will automatically need to provide extensive source-of-wealth evidence.
Account activity should generally make sense in the context of the company's stated activities.
For example, if a UK consulting company tells its financial provider that it expects to receive £10,000 per month from UK clients but suddenly receives a very large payment from an unrelated overseas third party, the provider may request further information.
Being able to explain the commercial reason for a transaction can make the review easier.
An invoice can help demonstrate the commercial reason behind a payment.
For example:
UK company issues £15,000 invoice → Customer pays £15,000 → Payment arrives in business account
The invoice helps connect the payment to a genuine business transaction.
Depending on the circumstances, a provider may also request contracts, bank statements or other supporting evidence.
If a regulated provider cannot obtain sufficient information to satisfy its customer due diligence obligations, it may be unable to proceed with a transaction or business relationship.
UK guidance provides that where required customer due diligence cannot be completed, a regulated business generally must not establish or continue the relevant relationship or carry out the transaction, subject to the applicable rules.
It is therefore important to maintain clear records showing where significant company funds originate.
Yes.
Banks and other regulated providers conduct ongoing monitoring of business relationships. This includes reviewing transactions to ensure they are consistent with what the provider knows about the customer, its business and risk profile.
You may therefore receive a request for supporting information even if your business account has been open for several years.
Maintain an organised record of significant company transactions.
Useful documentation can include:
The records should make it possible to follow the transaction from its underlying commercial source to the company's account.
When a provider requests information, answer the specific question clearly.
For example, instead of saying:
"Business income."
A clearer explanation might be:
"The £25,000 payment is revenue from a customer for consulting services provided under the attached contract and invoice."
Then provide the relevant supporting documentation requested by the provider.
Clear explanations and original, unedited documents can reduce unnecessary follow-up questions.
Source of funds means the origin of particular money used in a transaction or business relationship.
Banks and regulated providers may need this information as part of their KYC, AML and customer due diligence obligations.
They can form part of the evidence, particularly when they clearly correspond with customer payments. Additional documentation may sometimes be required.
Potentially, yes. A director can legitimately fund a company, but the provider may request evidence explaining the origin of the money and the reason for the transfer.
No. Source of funds concerns particular money, while source of wealth concerns how a person's overall wealth was accumulated.
Yes. Source-of-funds questions can arise as part of ongoing transaction monitoring and customer due diligence.
Source of funds explains where money entering or being used by a UK company actually came from.
For example:
Customer sale → Invoice → Payment → UK company account
or:
Director's savings → Director funding → UK company account
Banks and payment providers ask for this information to understand transactions and meet their KYC and Anti-Money Laundering obligations.
UK companies should therefore keep clear invoices, contracts, bank statements and other supporting records that demonstrate the genuine origin of significant funds.
