Target Balance Accounts
A Target Balance Account is a checking account that is designed to maintain a balance of zero or greater, even as checks are written against it.
The Company establishes a Master Account where the company’s primary operating funds reside. The flow of transaction activity is as follows:
- The Master Account generally receives all deposits and disburses funds to the Target Balance Account only when necessary to cover checks that are presented for payment,
- More than one Target Balance account can be linked to a centralized Master Account,
- Daily, as checks are presented for payment against Target Balance Accounts, funds from the Master Account are automatically transferred to cover the total amount of checks presented.
- The automatic transfer of funds eliminates the possibility of overdrafts as long as the Master Account has adequate balances to pay for the presented check items.
The use of Target Balance Accounts allows for the accounting integrity to occur within separate accounts while the company’s balances on deposit reside in the Master Account and may be better controlled for excess liquidity or when the concentration of funds is necessary to transact other business.
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