CashPooling

Cash pooling is a treasury management technique used by corporate groups to optimize liquidity by concentrating cash from multiple subsidiaries into a central pool or by offsetting balances across accounts. The goal is to reduce external borrowing, minimize idle cash, and improve visibility into group-wide liquidity.

There are two main forms: physical (or real) pooling, where funds are swept from subsidiary accounts into a central concentration account, typically at end of day or in real time, leaving minimal balances in the source accounts; and notional (virtual) pooling, where balances are aggregated for interest calculation and risk sharing without actual fund transfers, with offsets recorded in the bank via notional balances.

Mechanics: in physical pooling, zero balance accounts feed a master account; in notional pooling, balances are kept separately but treated as a single pool for interest and credit limits. In both cases, banks may support cross-border participation, currency conversion, and automated sweeps.

Benefits include improved liquidity visibility, reduced need for external credit, lower interest costs, centralized treasury control, and faster funding for intra-group needs. Not all jurisdictions or banks permit notional pooling, and tax, transfer pricing, and regulatory rules must be considered.

Implementation considerations include defining liquidity targets, intercompany loan terms, governance, treasury policy, and agreements with banks; addressing legal and tax constraints; selecting pooling type suitable for each jurisdiction; and ensuring robust reconciliation and reporting.