What Is a Zero Balance Account (ZBA)?

Zero Balance Account (ZBA) Explained

Small business owner calculating expenses
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A zero balance account (ZBA) is a type of business checking account in which the goal is to always keep the balance at $0. It’s usually tied to a main account that sweeps funds into and out of the ZBA as transactions are made.

To help you understand how ZBAs work, it’s important to take a closer look at what they entail, their benefits, and when your business might need one.

Definition and Examples of a Zero Balance Account

A zero balance account is a business checking account that maintains a balance of zero by sweeping funds into and out of a main account. It’s mostly used by companies that need to manage separate accounts for payroll, petty cash, departmental spending, or other projects, but don’t want to waste time manually repositioning funds in these accounts.

Zero balance accounts are always tied to a main account, or concentration account, that facilitates transactions and processing, and sweeps money into the zero balance account as needed.

  • Acronym: ZBA

For example, let’s say you own XYZ Corporation. You have ZBAs set up for each of your departments—for example, human resources, marketing, finance, operations management, and IT.

Instead of having to add money to those accounts each time a department needs to pay a vendor or make a purchase, the exact amount of money needed will be automatically moved from the main account to the appropriate ZBA to cover that day’s transactions.

If, for some reason, there’s a positive balance in the ZBA at the end of the day, those funds get transferred back into the main account. Although in some cases, a company may wish to set the target balance to something other than zero.

How a Zero Balance Account Works

ZBAs can help businesses streamline operations by allowing them to keep most of their cash in a central location. This minimizes the amount of idle cash they keep on hand and cuts down on administrative costs that would typically be incurred from having to transfer funds manually.

You can also think of a ZBA as a “child” account and the main account as a “parent” account. Each time a payment gets posted to a ZBA, that exact amount is dispersed from the parent account to the child account (the same as if your parent gave you $3.71 to buy a gallon of milk at the store). If the ZBA has a positive balance at the end of the day, that money gets swept back to the parent account.

In other words, the primary, or parent, account always possesses the money. It only transfers funds to the ZBA on an as-needed basis. And when it does transfer funds, it’s always for the exact amount required—never more than that.

With ZBAs, sweeping and transferring of funds is done automatically. All a business typically has to do is reconcile figures by cross-referencing account numbers on its bank statements.

Benefits of a Zero Balance Account

There are several specific benefits to using ZBAs. Here are some notable examples.

Saves Time 

Because of the ability to automate transactions, one of the biggest benefits of ZBAs is that they eliminate the need to manually move and track funding to subaccounts. This saves a company time and money they’d otherwise be spending on repositioning funds and tracking balance levels.

ZBAs can make it easier for a business to reconcile accounts, audit transaction histories, and get detailed reports on departmental spending.

Limits Banking and Clerical Errors

Juggling several different amounts of cash can get confusing. By keeping funds in one main account—and automating the process—you minimize your business’s chances of accidentally overdrafting, racking up fees, or making clerical mistakes.

Makes It Easier To Audit and Track Spending

ZBAs can help businesses monitor spending for departments, short-term projects, payroll, and more on a granular level. If one entity is overspending, a business may be more likely to spot it with a ZBA than it would if it were manually tracking funds.

Reduces Risk of Fraud

The more bank accounts you have, the more time you have to spend monitoring them for fraudulent activity. But when you only have one main account holding the money, you can lower your chances of being compromised.

Optimizes Cash Flow

Instead of having small amounts of money sitting idle in various accounts, a ZBA can allow you to aggregate these funds and use them to invest and fund other business goals.

Provides More Spending Control

Because ZBAs carry a balance of zero, debit card purchases typically have to be preapproved before they can be made. This, in turn, gives a business more control over spending and allows it to put procedures in place for how it will conduct purchases.

Zero Balance Account vs. Sweep Account

Zero balance accounts and sweep accounts are both designed to maintain a particular balance by transferring funds into and out of a main account. But zero balance accounts are mainly associated with business checking accounts while sweep accounts are tied to brokerage accounts.

This chart breaks down more differences between zero balance accounts and sweep accounts:

Zero Balance Account Sweep Account
A type of business checking account that maintains a balance of zero by sweeping funds into and out of a primary bank account A type of bank or brokerage account that maintains a predetermined balance by automatically transferring excess funds into a  secondary investment account
Goal is to maintain a balance of $0 Goal is to maintain a predetermined balance set by the account holder
Usually FDIC- or NCUA-insured May not be FDIC-insured if swept into an investment account

Key Takeaways

  • A zero balance account is a business checking account that permanently maintains a balance of zero by sweeping funds into and out of a main account.
  • In some cases, a company may choose to set a specific target amount for a ZBA, so it always has some residual cash on hand—although typically, the goal is to keep a balance of zero.
  • ZBAs are mostly used by businesses that need to maintain separate accounts for payroll, departmental expenses, and other needs but don’t want to manually move and monitor funds.
  • ZBAs can help businesses optimize their cash flow, eliminate accidental overdrafts and fees, reduce fraud risk, cut down on administrative costs, and audit expenses on a more granular level.