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Zero Balance Account

February 1st, 2010

A zero balance account is a type of account that can make payments but does not carry a balance. A small business checking account that only carries enough funds to pay off its vendors is a type of zero balance account. Zero balance accounts are almost always in the form of a business checking account.

The advantage of having a zero balance checking account is that you don’t lose a single penny on lost interest. You can keep all your business funds in interest bearing accounts so your money is always working for your business. Funds can be moved to the zero balance account right before any bill is due. This maximizes a company’s profitability.

It’s easier to keep track of finances in a zero balance account. Every time you want to spend money on your business you have to basically manual move funds. Any use of company funds must be pre-authorized, or else there won’t be any funds to spend in the zero balance account.

A zero balance account is a great way to manage a company’s cash flow. One stipulation is that you should have your zero balance account at the same bank that you have your interest bearing account. This allows you to transfer funds instantly. If you had accounts at separate banks you would have to wait for funds to transfer and that would be bad for business.

personal finance

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