Zero balance account

A zero balance account (ZBA) is part of a cash pooling system. It is usually in the form of a checking account that is automatically funded from a central account in an amount sufficient to cover presented checks. To do so, the bank calculates the amount of all checks presented against a ZBA, and pays them with a debit to the central account. Also, if deposits are made into a ZBA account, the amount of the deposit is automatically shifted to the central account. Further, if a subsidiary account has a debit (overdrawn) balance, cash is automatically shifted from the central account back to the subsidiary account in an amount sufficient to bring the account balance back to zero. In addition, subsidiary account balances can be set at a specific target amount, rather than zero, so that some residual cash is maintained in one or more accounts.

There are three possible ZBA transactions, all of which occur automatically:

  • Excess cash is shifted into a central account

  • Cash needed to meet payment obligations is shifted from the central account to linked checking accounts

  • Cash needed to offset debit balances is shifted from the central account to linked accounts

The net result of a ZBA is that a company retains most of its cash in a central location, and only doles out cash from that central account to pay for immediate needs. This approach also reduces the risk of a fraudulent transfer out of the zero-balance account, since there is so little cash in it. A key advantage of the zero balance account is that cash can be aggregated to take advantage of better investment alternatives.

Related Courses

Corporate Cash Management 
Treasurer's Guidebook