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A zero balance account is a financial account used for payments without maintaining a balance. It helps earn interest on other accounts and tracks transactions easily. It’s useful for companies with revenue close to debt, but should be maintained at the same institution as the primary interest-bearing account.
A zero balance account, or ZBA, is a financial account that is used to make payments, but does not maintain a current balance. An example of this type of account would be a business checking account that is used to pay company suppliers, but only contains enough funds to cover checks written. In general, the financing is obtained from a different account under the control of the company.
There are several reasons to use this type of account. One of the biggest advantages of maintaining a zero checking account balance is that the organization’s resources 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 transferred to the checking account just before the checks are presented for payment. As a result, the company can earn a significant amount of interest income over the course of the calendar year.
Another reason to maintain 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 linked to checking accounts, a zero balance approach helps ensure that any use of these cards is made only with advance authorization, and when funds are available to transfer to the account. to cover the charges. . This level of money management can make it less likely that money needed to cover operating expenses will be used for incidental purchases.
The zero balance account is a good resource management tool when the amount of revenue a company has is close to the amount of debt that must be discharged in the short term. However, it is important that the company maintains the account at the same institution as the primary interest-bearing account, as this ensures that funds can be transferred in real time or at least on the same business day. Businesses should note that transfers of funds between accounts are subject to the terms of use in effect for the particular financial institution.
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