A zero balance account, also known by its initials ZBA, is a checking account (UK: current account) which is automatically set to be at a zero balance all the time. Funds are automatically transferred from a master account only when checks are presented, and only enough to cover those amounts each time.
Companies use a zero balance account to eliminate excess balances in different accounts, and to monitor their payments more carefully.
When the account holder makes a check payment, only the amount written on the check is transferred to th ZBA to maintain a zero balance as soon as the check has been paid.
By operating in this way, the account holder can harbor his, her or its cash within a master account for the purposes of investment. This system also makes it much less likely that a fraudulent transfer is sent out of the zero balance account, because it only ever has cash in it when a check needs to be paid.
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A zero balance account is a checking account which always has a balance of zero. Whenever a company needs to write a check, funds for that exact amount are transferred into the account. As soon as the check is cashed, the balance goes back to zero again.
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Definitions.uslegal.com says the following regarding a zero balance account (ZBA):
“Usually, corporations use ZBA to eliminate excess balances in separate accounts and maintain greater control over disbursements. A corporation transfers exact money into the ZBA account for which, the corporation has issued check.”
“Once the check is cashed there will once again be a balance of zero in the account. ZBA helps the corporation to avoid keeping money in different places.”
Debit Cards and the zero-balance account
Companies and other organizations that issue debit cards use a zero balance account to help ensure that all transactions on the cards are pre-approved.
As there are never any idle funds with a zero balance account, a debit card transaction cannot be completed until money is transferred to the account. This helps prevent any unapproved activities from going ahead.
BB&T Corporation, a large financial service holding company based in North Carolina, USA, says that the zero balance account is designed for businesses that maintain a general operating account and separate accounts for petty cash, payroll, or other purposes.
“With Zero Balance Accounts (ZBAs) in place, all of the company’s funds are concentrated into one operating account. Disbursements are made from subsidiary accounts, which always maintain a zero balance. This account system allows the company increased investment opportunities and reduces administrative expenses.”
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Video on zero balance accounts
In this Strategic Treasurer video, a banker talks about zero balance accounts.
