What is that ? – Forbes Advisor
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If the goal is to have money in the bank, then a “zero balance account” may seem like the opposite of what you need. But for business owners and corporations, a ZBA can create peace of mind and help maintain financial integrity.
If you are a business owner, a ZBA could be the perfect solution to improve your business accounting.
What is a zero balance account?
A zero balance account is just that: a business checking account that maintains a zero balance at the end of each day. When the business needs money, the exact amount is transferred from a connected “parent” account to the ZBA.
Businesses can use the funds to cover expenses such as payroll, petty cash, and the needs of different departments. If there are funds left in the account at the end of the day, they are funneled back into the main account where the money can earn interest, often at a better rate.
ZBA accounts are sometimes referred to as sub-accounts, although not all sub-accounts are ZBAs.
How does a zero balance account work?
In many cases, zero balance accounts can help business owners better track their finances to prevent audit disasters and avoid fraud.
ZBAs can even cut costs by automating transfers, moving unused funds to interest-bearing accounts, and protecting you against overdrafts, allowing you to focus on growing and running your business while your money works for you.
For a zero balance account system to work, you must first have a main parent account where all your money is centralized. From there, a ZBA would be a “child” or offspring account, where money flows “down” for payments and “up” for receivables or deposits. A company can have multiple ZBAs and even different levels of accounts.
Once the checks are presented against a ZBA, the bank automatically debits the main account and transfers the funds into the ZBA so you don’t have to monitor and perform these transactions yourself. Conversely, when deposits are made in the ZBA, the bank automatically sends them back to the parent company.
What are the benefits of maintaining a zero balance account?
Here are some of the benefits of using ZBAs for business accounting.
- Centralized cash with flexibility. Keeping most of your funds in one main account and maintaining multiple ZBAs optimizes your cash flow. Instead of leaving the money unused, you can transfer the money to different child accounts when you want to invest or take advantage of other opportunities.
- Simplified budget management. Depending on the size and complexity of your business, multiple accounts are often required and can become difficult to manage. A ZBA allows you to have an array of well-organized and streamlined dedicated accounts.
- Limited errors. An automated system that transfers money from the parent account to the ZBAs helps eliminate clerical errors. It also reduces the time spent on each transaction.
- Increased visibility and notoriety. When funds flow in and out of ZBAs cleanly, it is often easier to track and internally verify spending, especially overspending, and you can more easily assess your overall daily cash position.
- Reduced risk of fraud. Using ZBAs makes it easy to protect a larger master account from fraud and theft.
- Overdraft protection. You will never have to pay a fee for having insufficient funds to process a transaction, as the bank will automatically withdraw the exact amount you need from the main account and direct it to the ZBA.
- Pre-approved debit card transactions. When a business issues debit cards to its employees and connects the cards to a ZBA, each transaction is pre-approved and creates a cleaner line of communication and flow.
What are the disadvantages of zero balance accounts?
Although ZBAs offer many advantages, there are some disadvantages to consider.
- Limited control. ZBAs are highly automated and it is not easy to transfer money manually. In fact, this defeats the main purpose of the ZBA.
- Reconciliation is always necessary. Your business will still need to regularly track and reconcile each Simplified ZBA transaction.
- Potentially more work. If a transaction fails, it can create several additional transactions. This creates more work and oversight on your end.
- You have to structure. Having multiple accounts can get messy, so you’ll need to put in place an administrative structure and process that keeps everything in order for your business.
Should you apply for a zero balance account?
Zero balance accounts are best suited for established businesses that need to streamline operating accounts, manage multiple locations or departments, have strong cash flow, and manage large payrolls.
ZBAs are not designed for consumers or for business owners with few employees, low cash flow and no separate departments.
What does it take to open a zero balance account?
Banks have certain minimum requirements before they will consider opening ZBAs attached to your main business account. Zero-balance banks may have their own unique sets of qualifications, but here are some common ones:
- Your business must be a registered business.
- You must already have a primary business account.
- Your business should be established with enough cash to support ZBA accounts, as the bank will now do much of the work for you.
How to Apply for a Zero Balance Account
Each ZBA bank has its own application process, many of which start online with a basic query and request for information. You can also make an appointment to speak with your personal banker, the bank’s commercial team or their cash management department to begin a formal application process.
If your bank determines that a ZBA is right for you, they can help you decide how many zero-balance accounts you need, as well as how many tiers.
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Frequently Asked Questions (FAQ)
Do zero balance accounts have fees?
Some banks charge a fee, so find out before setting up ZBAs. You can still be a winner when you pay a fee because the bank takes some of the work away from you. And when your funds flow into the main account to invest or earn interest, putting the money to work can cover the cost of fees associated with setting up a ZBA.
Who do I talk to about setting up a ZBA?
You can contact your banker, the bank’s business solutions team or their treasury department to ask questions and begin a formal application process.
Can I configure my ZBA to maintain a specified amount other than zero?
Yes, you can work with your banker to maintain residual cash in one or more ZBAs by designating a target other than zero.