What is a zero balance account?

A zero balance account, also known as a ZBA, is often used by businesses to help control their finances – here’s a closer look at how they do it.

Zero balance account definition

A zero balance account is, as the name suggests, an account that has a permanent balance of zero. This is done by having the balance of the account “swept” into another account at the end of each business day. For this reason, the use of a zero balance account is also sometimes known as “sweeping.” The balance of the zero balance account is moved into a master account, and there may be multiple zero balance accounts (or sub-accounts) feeding into the same master account. If any money is needed by the ZBA, the precise amount can be transferred, which is then wired onwards once again, so the account remains at zero.

Zero balance accounts serve only to process payments. They cannot be used to hold long-term funds or gain interest.

Zero balance account example

A business’s master account holds $2,000. At the beginning of the business day, its three zero balance accounts are at $0. As the day progresses, multiple payments and cheques come into each sub-account, leading to each account holding $40, $60, and $100, respectively. At the end of the day, the zero bank account bank sweeps all this from the sub-accounts into the master account. At the opening of the next day, the master account now has a balance of $2,200, and the sub-accounts are once again at $0. This repeats every business day.

Benefits of zero balance account

So, why are businesses doing this? There are several advantages to a zero balance account, including:

Greater control of departmental funds

Rather than have separate accounts for each department where funds can be allocated, say, per quarter, a zero balance account means the precise funds needed can be moved precisely when required. This prevents any excess from being left in the account, leading to inefficient spending.

Increased inefficiency

Zero balance accounts make use of automation. That means there is no need for staff members to clear the account at the end of every day, nor do they have to worry about time-zones, should their offices be in different locations. The bank has systems to ensure that the account will be swept to zero at EOB, wherever the office is. If a cheque is written for the account, the ZBA also removes the precise amount needed to clear the cheque without any need for staff to intervene.

Higher interest rate

The master account will often benefit from a better interest rate than the sub-account – zero balance accounts are not designed to be used as checking accounts – so it pays to have funds in this centralised location.

Ensure proper process

As zero balance accounts hold $0, departments will need to lodge a request if they require funds. By insisting on formal requests for funds every time, you can ensure that procedures are always followed. This helps you avoid overspending on projects.

Prevent misuse of funds

Businesses must approve the withdrawal of funds from the master account into any of their sub-accounts. This means there cannot be unauthorised spending. If a company card is used for a cost that has not been approved, the payment won’t go through. This is ideal for protection against fraud.

Can zero balance accounts go into debt?

No. A zero balance account works both ways, which means that both credit and debit are swept to the master account.

Take the following zero balance account example. Imagine that c company’s zero balance account starts the day at $0. By midday, it’s $10 in credit, but by 5.30 pm, it’s $15 in debt. At the end of the business day, the bank sweeps the debt to the master account, which has an initial balance of $100. Rather than keep the debt in the zero balance account for the next day, it’s moved to the master account so the ZBA can return to $0. The master account now has a balance of $85.

Can anyone have a zero balance account?

No, zero balance account banks will not offer this product to general consumers – they are a business banking solution. Furthermore, zero balance account banks may not provide ZBAs to smaller businesses.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.