Zero balance account

In the most common model, assuming that all involved entities are in the same time zone and have the same end of business, it works in one of the following methods:

• Continuous balancing: Every night at end of business, the remaining balance is transferred in an instant transaction to the parent account and noted in a database. Multi-level hierarchies are possible but rare; usually there is one parent account per currency. The next morning at start of business, the amount is transferred back to the entity it came from, according to what was stored in the database. This works only if the institutions of both parties are able to execute instant transfers, usually if it is the same bank. The funds are then usually accounted for as cash in bank.
• Daily balancing: Every night at end of business, the amounts accumulated during that day (balance of payments received, payments made and fees incurured during the day) is either sent to the parent company if positive, or requested from the parent company if negative. This way the account starts at 0 every morning. The theoretical account balance (if there had not been zero-balancing transactions) are then usually accounted for as intra-group payables or receivables. This variant is usually also feasible between different institutions, time zones and currencies.

Zero-balancing may have the disadvantage of not allowing enough independence to financial subsidiaries as the overdraft limits and choice of institutions are usually handled by the parent company in such setups, and may depend on the latter's creditworthiness in times of crisis. Therefore, it is usually done for wholly owned subsidiaries and less often for joint ventures and other less-than-wholly owned subsidiaries.

Moreover, disturbances in free international cash movements, e.g. through routine central bank scrutiny of foreign exchange activities, may deter from using this model in certain country constellations.

• Cash management
• Target balance account