A zero balance account, or ZBA, is a financial account that is used to make payments, but does not maintain a running balance. An example of this type of account would be a business checking account that is used to pay vendors of the company, but only contains enough funds to cover the checks that are issued. Generally, the funding is obtained from a different account under the control of the business.
There are several reasons to use this type of account. One of the biggest advantages of maintaining a balance of zero in the checking account is that the resources of the organization can be held in other financial accounts that pay more interest. This means that the organization's funds are earning money for the company, and are only being moved into the checking account just before the checks are due to be presented for payment. As a result, the company may earn a significant amount of interest income over the course of the calendar year.
Another reason for maintaining a zero balance account is that it is much easier to track the transactions associated with the account. In an age where debit cards are often tied to checking accounts, a zero balance approach helps to ensure that any use of these cards is done only with authorization ahead of time, and when funds are available to be transferred into the account to cover the charges. This level of money management can make is less likely that money needed to cover operational expenses will be used for incidental purchases.
The zero balance account is a good tool for managing resources when the amount of income a company has is close to the amount of debt that needs to be discharged in the short term. It is important for the company to maintain the account at the same institution as the master interest bearing account, however, because this ensures that funds can be transferred in real time or at least on the same business day. Businesses should keep in mind that fund transfers between accounts are subject to the terms of usage in effect for the particular financial institution.
