Zero balance account – definition and meaning
A zero balance account, also known by its initials ZBA, is a checking account (UK: checking account) that is automatically set to zero at all times. Funds are automatically transferred from a primary account only when checks are presented, and just enough to cover those amounts each time.
Businesses use a zero balance account to eliminate excess balances in different accounts and to more closely monitor their payments.
When the account holder makes a payment by check, only the amount on the check is transferred to the ZBA to maintain a zero balance as soon as the check has been paid.
By operating in this manner, the account holder can house their cash in a master account for investment purposes. This system also makes it much less likely that a fraudulent transfer will be sent from the zero balance account, as there is never any cash until when a check is due.
Definitions.uslegal.com says the following concerning a zero balance account (ZBA):
âUsually, companies use ZBA to eliminate excess balances in segregated accounts and maintain better control over disbursements. A company transfers the exact money to the ZBA account that the company has issued a check for.
âOnce the check is cashed, there will again be a zero balance on the account. ZBA helps the company avoid keeping money in different places.
Debit cards and zero balance accounts
Businesses and other organizations that issue debit cards use a zero balance account to ensure all card transactions are pre-approved.
Since there are never any unused funds with a zero balance account, a debit card transaction cannot be completed until the money is transferred to the account. This is to prevent unapproved activities from continuing.
BB&T Corporation, a large financial services holding company based in North Carolina, United States, says the zero balance account is designed for companies that maintain a general operating account and separate accounts for petty cash. , payroll or for other purposes.
âWith zero balance accounts (ZBAs) in place, all of the company’s funds are concentrated in one operating account. Disbursements are made from subsidiary accounts, which always maintain a zero balance. This account system allows the company to increase investment opportunities and reduce administrative expenses.
Zero Balance Accounts Video
In this Strategic Treasurer video, a banker talks about zero balance accounts.