If you are a small business owner, you know that you have many expenses. Keeping track of when they’re due, if they’ve been paid, and if the accounts you keep your money in are balanced can take a lot of work.
To help, many banks offer their business customers a variety of cash management tools that reduce at least some of the labor demand. Zero balance accounts are one such tool.
A zero balance account (ZBA) is a business account that maintains a balance of $0 until the business needs to withdraw money from the account. When the company makes a transaction against the account, funds are automatically transferred to it from the company’s main account to pay for those expenses.
These accounts help businesses manage their cash flows and budgets. Businesses also use such accounts to avoid having large amounts of excess funds. By centralizing their cash flow, companies limit the risk of clerical errors and ensure that money is only withdrawn when necessary.
Key takeaways
- Zero balance accounts are bank accounts that have a balance of $0 until the business has cash flow needs.
- Most cash stays in a main account, which can earn interest or be used for investment opportunities.
- When the company needs money for certain expenses, cash is automatically transferred to the ZBA.
Zero balance account defined
Zero balance accounts are not like most personal checking accounts. These accounts have specific purposes, such as paying for a department’s expenses. For example, the cash can be used for salaries or to cover one-off expenses.
Instead of each department having its own checking account, most funds are held in a centralized account. This simplifies budgeting across different parts of the company.
The ZBA also helps businesses ensure that cash is available for other departments and budget purposes. The automated functionality of many ZBAs can reduce the amount of time the company might otherwise spend processing transactions manually.
How a ZBA works
When a company needs money in a ZBA, it is automatically transferred from the company’s central or main account. Once the money is in the ZBA, the company can use it to pay for transactions as needed.
Any funds remaining in the ZBA at the end of each day are automatically transferred back to the main account. By removing the human element from the cash transfer process, using a ZBA reduces the risk of error and reduces the risk of fraud thanks to a simpler, more streamlined paper trail.
Still, the ZBA does not completely eliminate the need for human intervention. Businesses must manually reconcile all account transactions. This helps ensure that everything is processed successfully and that there are no failed transactions.
A company can open different ZBAs for different teams, projects or initiatives. As mentioned, this helps with budgeting as the business can allocate money to different purposes as needed.
Pros and cons of zero balance accounts
Pro
- Centralized cash flow that simplifies budgeting
- Reduces typing errors by automating transfers
- Less risk of fraud as only the main account needs to be continuously monitored
- Reduces the risk of overdraft by drawing from a larger main account
Disadvantages
- Still requires manual tuning
- Can create extra work if a transaction fails
The overall benefit of using a ZBA is that it should simplify budgeting and reduce cash handling errors. Still, they can have drawbacks.
First, businesses must regularly reconcile transactions to ensure there are no problems. If a transaction fails for any reason, it can create the need for multiple transactions that require more work to fix.
How to open a zero balance account
If you feel that the advantages of the ZBA outweigh the disadvantages, you may be interested in opening one. But not just anyone can open these accounts. In general, you must be a business owner to open a ZBA. Often these accounts are not available to consumers. These accounts are probably not for you if you have limited cash flow or structure.
In addition, you usually need to have your main account and zero balance accounts with the same bank. The bank may require you to meet certain cash flow and credit-related requirements, which may vary depending on the bank.
If you believe you meet the requirements to open a ZBA, you must follow your bank’s application process. Application processes vary but can often be completed online or in person, possibly over the phone if you prefer.
Of course, you may have questions about opening a ZBA. Don’t hesitate to talk to your merchant banking representative if you have any questions during the process.
You should also pay close attention to the fees and policies associated with your account. ZBA can save your business time and money, provided the bank you decide to work with doesn’t charge exorbitant fees. A low daily transfer limit may also limit the usefulness of the account. Review all documentation carefully before proceeding with the account opening.
Frequently asked questions
Do you need a zero balance account?
Zero balance accounts are not a requirement for businesses, but they can help you simplify budgeting and cash flow management. This is especially true for large companies with many departments, projects and initiatives.
What is a Zero Balance Account (ZBA)?
A zero balance account is a bank account that has a balance of $0. It is linked to a central or master account, and money is automatically moved to it to cover various transactions. Any money left in the account at the end of the day is automatically transferred back to the main account.
How to open a zero balance account online?
To open a zero balance account online, visit your preferred bank’s website. Some banks have a website dedicated to this type of account. If your bank does not, use the live chat or send an inquiry and ask for information about the ZBA.
Bottom line
A zero balance account can be a great way for businesses to manage their cash flow and simplify budgeting. They do this by assigning bank accounts to different departments or projects and transferring money to them only when needed.
Although they sometimes create extra work, ZBAs generally reduce clerical work and manual input. They are great for small businesses, but if you have a large, established business with strong cash flows, you may be the right customer for a ZBA as well.
You can do this by visiting your existing bank online or in person and see if it offers these accounts. If not, watch best banks and see if they offer ZBA. This may mean switching business bank accounts, but it may be worth it if you are set on opening a ZBA for your business.