What Is a Zero Balance Account (ZBA)?
A zero balance account (ZBA) is a checking account in which a balance of zero is maintained by automatically transferring funds from a master account in an amount only large enough to cover checks presented. A ZBA is used by corporations to eliminate excess balances in separate accounts and maintain greater control over disbursements.
Aside from when a check is written against the ZBA, the account is always maintained at a zero balance. This allows for greater control on the distribution of funds and limits excess balances from existing across multiple accounts.
The ZBA's activity is limited to the processing of payments and is not used to maintain a running balance.
This allows for a greater amount of funds to be available for use, such as for investment, instead of having small dollar amounts idle within a variety of subaccounts. Whenever funds are required in the ZBA to cover a check, funds are transferred from the master account in the exact amount required.
How Zero Account Balances Work
Using a zero balance account (ZBA) to fund debit cards issued by the organization helps to ensure all activity on the aforementioned cards are pre-approved. Since idle funds are not present within the ZBA, it is not possible to run a debit card transaction until funds are supplied to the account. This can help manage business expenses by limiting the risk of unapproved activities taking place.
The use of a ZBA as a spending control mechanism is especially helpful because it applies to incidental charges across a large organization. While operational charges are often easier to predict and fund, incidentals can be variable by nature. By limiting quick access to funds via debit cards, it is more likely proper approval procedures will be followed prior to the completion of a purchase.
Example of How Zero Balance Accounts Are Used
Because an organization may have multiple ZBAs, they can be created to assist in budget management. This can include creating a separate ZBA for various departments or functions, providing a quick way to monitor daily, monthly, or yearly charges.
Other reasons for creating a separate ZBA could involve the financial management of particular short-term projects or those at particular risk for unexpected overages because the use of a ZBA helps prevent excess charges without proper notification and approval.
The master account provides a central point for the management of funds within an organization. This account is used to send funds to any ZBA subaccounts as required. Often, the master account has other benefits over the subaccounts. This could include something as simple as a higher interest rate. By nature, a master account is not a checking account but rather some other, more profitable vessel.
- A zero balance account (ZBA) is an account in which a balance of zero is maintained by transferring funds from a master account.
- An organization may have multiple zero balance accounts.
- A ZBA is used by corporations to eliminate excess balances in separate accounts and maintain greater control over disbursements.