Cash Pooling
Increase the liquidity, improve interest result and reduce external debts,
this is common do be achieved with Cash Pooling. As Zero-Balancing, Target-Balancing
or Notional Cash Pooling.
The primary target of each cash pooling is the optimization and use of surplus funds of all companies in a group in order to reduce external
debt and increase the available liquidity. Furthermore, especially interest benefits in multiple ways can be achieved for the pool participants
on the payable and on the receivable side.
Type 1: Zero- or Target Balancing Cash Pool (physical)
The zero-balancing, also called cash-concentration or sweeping, is in his form the easiest way to introduce cash pooling. Depending on a
surplus or lack of cash, all cash balances in the Pool (Pool-Participants) will be transferred on daily basis automatic to or from the top-
mother account (Pool-Leader). A major positive effect is a shorter balance and therefore the key-figure of the debt-ratio improves. But there
are also some disadvantages, e.g. liability-questions in case of a short-fall of the pool-leader (see Erb-Group and Swissair in
Switzerland or Bremer Vulkan in Germany). Also there is a higher administrative work since all intercompany cash flows on a daily level
have to be booked at the pool-leader (can be automatized). The key-element of a zero- or target balancing is that all cash flows are
physicly.
Setup of a Zero-Balancing-Pool
It is also important to respect tax considerations, i.e. transfer pricing. Because as already mentioned, the “classic” cash pooling is simply an
automatic loan transaction on daily basis. Some countries, also in Europe, have laws that either interest payment and/or loans in the
one or other direction are prohibited or even do not allow physical cash flows. This is typically a process of multinational groups and has
negative impact on cross border transactions.
Process / Functionality of a Zero- or Target Cash Pool
Pooling Accounts of the Participants can be regulated in two ways, both fully automatic:
a) Zero-Balancing: all participating accounts, except the header-account, are set to 0 (zero) at the end of a day. Surplus balances are
debited, minus balances are credited to/from the header account.
b) Target-Balancing: basically the same procedure as with zero-balancing, just with a number of extended parameter regarding the day-
end balance. For example every day a pre-defined balance remain on the account, which may be for instance used for lease-guarantee
etc.
Because of technical restrictions all transfers can be
booked at the next following day, but will be execured
always with the correct value date.
Here an example, how the communications for the
transfer of balances may happen through the SWIFT-
Network. Dependent from the executing Banks some
differences can be the case. It is also often the case
that the cash pool can be not managed by only one
Bank, because the House-Bank has not in every
country a branch. This is commonly the case in
Cross-Border Pools, see below. That means a third
Bank must be included in the pool-network.
This example is certainly strong simplified und
contains for instance no internal connections which
are mandatory in the accounting of the Pool-Leader
an all Subsidiaries.
Type 2: Notional Cash Pool (no physical transfer of funds)
The meaning of „notional“ name it: this pooling form is not real. But is is a 100% interest optimization. There are no physical transfers
between the accounts. The single balance accounts will be added together and netted against each other. Therefore each pool participant
has his own bankaccount with the full physical balance, but the full interest spread remain within the group.
Therefore this kind of pooling meets perfect the needs of companies which does not like to enter into any credit risk! In a few words:
interest optimization without having the character of loans and related risks.
An extended version of this pooling is a combination of different currencies in one and the same cash-pool. Some Banks offer this service,
ask us for assistance. Technically, the Bank is just entereing into a number of overnight-swaps.
Complex Topic: Cross Border Cash Pooling
A well tuned cash pool structure may not only transfer cash over the border, it can do it even in different currencies! So it is possible to
establish a cash pool for EUR, one for for CHF and one for USD. All cash flows will be transferred to / from the ultimate mother group
account on daily basis and will be managed by the Treasurer as portfolio to cover gaps on daily or weekly with swaps, without entering
into any foreign exchange risk!
Cross-Border Pooling is certainly the biggest advantage for a cash management who wants to generate a maximum benefit out of the cash
pool. But also the risk increase and therewith related, the ultimate accuracy for setting up or manage cross-border pools. Risk has per
definition the attribute as getting larger as more parameters need to be considered. The adavantages and disadvantages are different from
company to company, depending on the structure and planned pooling type. For instance, the right bank on your side is very important. To
find out who this bank could be is described here. In the the following just a view arguments in a SWOT analysis which should be
considered very carefully:
Controlling
Be aware - cash pooling can be also a threat if rights and liabilites are not clearly defined. For this we recommend a comprehensive
Treasuy Policy - see here.
Software Support
A proper management of a cash pooling may become quite complex if there is no sufficient support by an adequated software. See here
how Cash Pooling can be managed easy and safe with the Cash Pool Module in our Treasury Software STS.
Country specific Items
Depending on the country where the bank-account for the cash pool is established, it is fully, partially or not allowed to operate such a pool.
Based on our experience with cash pool projects world wide we composed a manuscript which gives an overview about the different
country-specifications. Read more in detail here.
Reasons for Cash Pooling
Optimal allocation of internal liquid funds and max. reduction of external debts,
•
Reduction of financing costs on group level,
•
Improvement of investment return due to economies of scale,
•
Simplification of liquiditymanagagement on local level,
•
Reduction of external banking costs due to centralization,
•
Optimization of cash flow forecast because of coordination of financing cycles,
•
Break-Even of a cash pool starts at around 300’000.- required capital.
Contact us, we would be glad to show you the possible opportunities!
debt and increase the available liquidity. Furthermore, especially interest benefits in multiple ways can be achieved for the pool participants
on the payable and on the receivable side.
Type 1: Zero- or Target Balancing Cash Pool (physical)
The zero-balancing, also called cash-concentration or sweeping, is in his form the easiest way to introduce cash pooling. Depending on a
surplus or lack of cash, all cash balances in the Pool (Pool-Participants) will be transferred on daily basis automatic to or from the top-
mother account (Pool-Leader). A major positive effect is a shorter balance and therefore the key-figure of the debt-ratio improves. But there
are also some disadvantages, e.g. liability-questions in case of a short-fall of the pool-leader (see Erb-Group and Swissair in
Switzerland or Bremer Vulkan in Germany). Also there is a higher administrative work since all intercompany cash flows on a daily level
have to be booked at the pool-leader (can be automatized). The key-element of a zero- or target balancing is that all cash flows are
physicly.
Setup of a Zero-Balancing-Pool
It is also important to respect tax considerations, i.e. transfer pricing. Because as already mentioned, the “classic” cash pooling is simply an
automatic loan transaction on daily basis. Some countries, also in Europe, have laws that either interest payment and/or loans in the
one or other direction are prohibited or even do not allow physical cash flows. This is typically a process of multinational groups and has
negative impact on cross border transactions.
Process / Functionality of a Zero- or Target Cash Pool
Pooling Accounts of the Participants can be regulated in two ways, both fully automatic:
a) Zero-Balancing: all participating accounts, except the header-account, are set to 0 (zero) at the end of a day. Surplus balances are
debited, minus balances are credited to/from the header account.
b) Target-Balancing: basically the same procedure as with zero-balancing, just with a number of extended parameter regarding the day-
end balance. For example every day a pre-defined balance remain on the account, which may be for instance used for lease-guarantee
etc.
Because of technical restrictions all transfers can be
booked at the next following day, but will be execured
always with the correct value date.
Here an example, how the communications for the
transfer of balances may happen through the SWIFT-
Network. Dependent from the executing Banks some
differences can be the case. It is also often the case
that the cash pool can be not managed by only one
Bank, because the House-Bank has not in every
country a branch. This is commonly the case in
Cross-Border Pools, see below. That means a third
Bank must be included in the pool-network.
This example is certainly strong simplified und
contains for instance no internal connections which
are mandatory in the accounting of the Pool-Leader
an all Subsidiaries.
Type 2: Notional Cash Pool (no physical transfer of funds)
The meaning of „notional“ name it: this pooling form is not real. But is is a 100% interest optimization. There are no physical transfers
between the accounts. The single balance accounts will be added together and netted against each other. Therefore each pool participant
has his own bankaccount with the full physical balance, but the full interest spread remain within the group.
Therefore this kind of pooling meets perfect the needs of companies which does not like to enter into any credit risk! In a few words:
interest optimization without having the character of loans and related risks.
An extended version of this pooling is a combination of different currencies in one and the same cash-pool. Some Banks offer this service,
ask us for assistance. Technically, the Bank is just entereing into a number of overnight-swaps.
Complex Topic: Cross Border Cash Pooling
A well tuned cash pool structure may not only transfer cash over the border, it can do it even in different currencies! So it is possible to
establish a cash pool for EUR, one for for CHF and one for USD. All cash flows will be transferred to / from the ultimate mother group
account on daily basis and will be managed by the Treasurer as portfolio to cover gaps on daily or weekly with swaps, without entering
into any foreign exchange risk!
Cross-Border Pooling is certainly the biggest advantage for a cash management who wants to generate a maximum benefit out of the cash
pool. But also the risk increase and therewith related, the ultimate accuracy for setting up or manage cross-border pools. Risk has per
definition the attribute as getting larger as more parameters need to be considered. The adavantages and disadvantages are different from
company to company, depending on the structure and planned pooling type. For instance, the right bank on your side is very important. To
find out who this bank could be is described here. In the the following just a view arguments in a SWOT analysis which should be
considered very carefully:
Controlling
Be aware - cash pooling can be also a threat if rights and liabilites are not clearly defined. For this we recommend a comprehensive
Treasuy Policy - see here.
Software Support
A proper management of a cash pooling may become quite complex if there is no sufficient support by an adequated software. See here
how Cash Pooling can be managed easy and safe with the Cash Pool Module in our Treasury Software STS.
Country specific Items
Depending on the country where the bank-account for the cash pool is established, it is fully, partially or not allowed to operate such a pool.
Based on our experience with cash pool projects world wide we composed a manuscript which gives an overview about the different
country-specifications. Read more in detail here.
Reasons for Cash Pooling
Optimal allocation of internal liquid funds and max. reduction of external debts,
•
Reduction of financing costs on group level,
•
Improvement of investment return due to economies of scale,
•
Simplification of liquiditymanagagement on local level,
•
Reduction of external banking costs due to centralization,
•
Optimization of cash flow forecast because of coordination of financing cycles,
•
Break-Even of a cash pool starts at around 300’000.- required capital.
Contact us, we would be glad to show you the possible opportunities!
Cash Pooling
Increase the liquidity, improve interest result and reduce
external debts, this is common do be achieved with Cash
Pooling. As Zero-Balancing, Target-Balancing
or Notional Cash Pooling.
The primary target of each cash pooling is the optimization and use of
surplus funds of all companies in a group in order to reduce external
debt and increase the available liquidity. Furthermore, especially
interest benefits in multiple ways can be achieved for the pool
participants on the payable and on the receivable side.
Type 1: Zero- or Target Balancing Cash Pool
(physical)
The zero-balancing, also called cash-concentration or sweeping, is
in his form the easiest way to introduce cash pooling. Depending on a
surplus or lack of cash, all cash balances in the Pool (Pool-
Participants) will be transferred on daily basis automatic to or from
the top-mother account (Pool-Leader). A major positive effect is a
shorter balance and therefore the key-figure of the debt-ratio
improves. But there are also some disadvantages, e.g. liability-
questions in case of a short-fall of the pool-leader (see Erb-Group
and Swissair in Switzerland or Bremer Vulkan in Germany). Also
there is a higher administrative work since all intercompany cash
flows on a daily level have to be booked at the pool-leader (can be
automatized). The key-element of a zero- or target balancing is that
all cash flows are physicly.
Setup of a Zero-Balancing-Pool
It is also important to respect tax considerations, i.e. transfer pricing.
Because as already mentioned, the “classic” cash pooling is simply
an automatic loan transaction on daily basis. Some countries, also
in Europe, have laws that either interest payment and/or loans in the
one or other direction are prohibited or even do not allow physical
cash flows. This is typically a process of multinational groups and has
negative impact on cross border transactions.
Process / Functionality of a Zero- or Target Cash Pool
Pooling Accounts of the Participants can be regulated in two ways,
both fully automatic:
a) Zero-Balancing: all participating accounts, except the header-
account, are set to 0 (zero) at the end of a day. Surplus balances are
debited, minus balances are credited to/from the header account.
b) Target-Balancing: basically the same procedure as with zero-
balancing, just with a number of extended parameter regarding the
day-end balance. For example every day a pre-defined balance
remain on the account, which may be for instance used for lease-
guarantee etc.
Because of technical restrictions all transfers can be booked at the
next following day, but will be execured always with the correct value
date.
Here an example, how the communications for the transfer of
balances may happen through the SWIFT-Network. Dependent from
the executing Banks some differences can be the case. It is also
often the case that the cash pool can be not managed by only one
Bank, because the House-Bank has not in every country a branch.
This is commonly the case in Cross-Border Pools, see below. That
means a third Bank must be included in the pool-network.
This example is certainly strong simplified und contains for instance
no internal connections which are mandatory in the accounting of the
Pool-Leader an all Subsidiaries.
Type 2: Notional Cash Pool
(no physical transfer of funds)
The meaning of „notional“ name it: this pooling form is not real. But is
is a 100% interest optimization. There are no physical transfers
between the accounts. The single balance accounts will be added
together and netted against each other. Therefore each pool
participant has his own bankaccount with the full physical balance,
but the full interest spread remain within the group.
Therefore this kind of pooling meets perfect the needs of companies
which does not like to enter into any credit risk! In a few words:
interest optimization without having the character of loans and related
risks.
An extended version of this pooling is a combination of different
currencies in one and the same cash-pool. Some Banks offer this
service, ask us for assistance. Technically, the Bank is just entereing
into a number of overnight-swaps.
Complex Topic: Cross Border Cash Pooling
A well tuned cash pool structure may not only transfer cash over the
border, it can do it even in different currencies! So it is possible to
establish a cash pool for EUR, one for for CHF and one for USD. All
cash flows will be transferred to / from the ultimate mother group
account on daily basis and will be managed by the Treasurer as
portfolio to cover gaps on daily or weekly with swaps, without
entering into any foreign exchange risk!
Cross-Border Pooling is certainly the biggest advantage for a cash
management who wants to generate a maximum benefit out of the
cash pool. But also the risk increase and therewith related, the
ultimate accuracy for setting up or manage cross-border pools. Risk
has per definition the attribute as getting larger as more parameters
need to be considered. The adavantages and disadvantages are
different from company to company, depending on the structure and
planned pooling type. For instance, the right bank on your side is very
important. To find out who this bank could be is described here. In the
the following just a view arguments in a SWOT analysis which should
be considered very carefully:
Controlling
Be aware - cash pooling can be also a threat if rights and liabilites are
not clearly defined. For this we recommend a comprehensive Treasuy
Policy - see here.
Software Support
A proper management of a cash pooling may become quite complex
if there is no sufficient support by an adequated software. See here
how Cash Pooling can be managed easy and safe with the Cash Pool
Module in our Treasury Software STS.
Country specific Items
Depending on the country where the bank-account for the cash pool
is established, it is fully, partially or not allowed to operate such a
pool. Based on our experience with cash pool projects world wide we
composed a manuscript which gives an overview about the different
country-specifications. Read more in detail here.
Reasons for Cash Pooling
Optimal allocation of internal liquid funds and max. reduction of
external debts,
•
Reduction of financing costs on group level,
•
Improvement of investment return due to economies of scale,
•
Simplification of liquiditymanagagement on local level,
•
Reduction of external banking costs due to centralization,
•
Optimization of cash flow forecast because of coordination of
financing cycles,
•
Break-Even of a cash pool starts at around 300’000.- required
capital.
Contact us, we would be glad to show you the possible
opportunities!
debt and increase the available liquidity. Furthermore, especially
interest benefits in multiple ways can be achieved for the pool
participants on the payable and on the receivable side.
Type 1: Zero- or Target Balancing Cash Pool
(physical)
The zero-balancing, also called cash-concentration or sweeping, is
in his form the easiest way to introduce cash pooling. Depending on a
surplus or lack of cash, all cash balances in the Pool (Pool-
Participants) will be transferred on daily basis automatic to or from
the top-mother account (Pool-Leader). A major positive effect is a
shorter balance and therefore the key-figure of the debt-ratio
improves. But there are also some disadvantages, e.g. liability-
questions in case of a short-fall of the pool-leader (see Erb-Group
and Swissair in Switzerland or Bremer Vulkan in Germany). Also
there is a higher administrative work since all intercompany cash
flows on a daily level have to be booked at the pool-leader (can be
automatized). The key-element of a zero- or target balancing is that
all cash flows are physicly.
Setup of a Zero-Balancing-Pool
It is also important to respect tax considerations, i.e. transfer pricing.
Because as already mentioned, the “classic” cash pooling is simply
an automatic loan transaction on daily basis. Some countries, also
in Europe, have laws that either interest payment and/or loans in the
one or other direction are prohibited or even do not allow physical
cash flows. This is typically a process of multinational groups and has
negative impact on cross border transactions.
Process / Functionality of a Zero- or Target Cash Pool
Pooling Accounts of the Participants can be regulated in two ways,
both fully automatic:
a) Zero-Balancing: all participating accounts, except the header-
account, are set to 0 (zero) at the end of a day. Surplus balances are
debited, minus balances are credited to/from the header account.
b) Target-Balancing: basically the same procedure as with zero-
balancing, just with a number of extended parameter regarding the
day-end balance. For example every day a pre-defined balance
remain on the account, which may be for instance used for lease-
guarantee etc.
Because of technical restrictions all transfers can be booked at the
next following day, but will be execured always with the correct value
date.
Here an example, how the communications for the transfer of
balances may happen through the SWIFT-Network. Dependent from
the executing Banks some differences can be the case. It is also
often the case that the cash pool can be not managed by only one
Bank, because the House-Bank has not in every country a branch.
This is commonly the case in Cross-Border Pools, see below. That
means a third Bank must be included in the pool-network.
This example is certainly strong simplified und contains for instance
no internal connections which are mandatory in the accounting of the
Pool-Leader an all Subsidiaries.
Type 2: Notional Cash Pool
(no physical transfer of funds)
The meaning of „notional“ name it: this pooling form is not real. But is
is a 100% interest optimization. There are no physical transfers
between the accounts. The single balance accounts will be added
together and netted against each other. Therefore each pool
participant has his own bankaccount with the full physical balance,
but the full interest spread remain within the group.
Therefore this kind of pooling meets perfect the needs of companies
which does not like to enter into any credit risk! In a few words:
interest optimization without having the character of loans and related
risks.
An extended version of this pooling is a combination of different
currencies in one and the same cash-pool. Some Banks offer this
service, ask us for assistance. Technically, the Bank is just entereing
into a number of overnight-swaps.
Complex Topic: Cross Border Cash Pooling
A well tuned cash pool structure may not only transfer cash over the
border, it can do it even in different currencies! So it is possible to
establish a cash pool for EUR, one for for CHF and one for USD. All
cash flows will be transferred to / from the ultimate mother group
account on daily basis and will be managed by the Treasurer as
portfolio to cover gaps on daily or weekly with swaps, without
entering into any foreign exchange risk!
Cross-Border Pooling is certainly the biggest advantage for a cash
management who wants to generate a maximum benefit out of the
cash pool. But also the risk increase and therewith related, the
ultimate accuracy for setting up or manage cross-border pools. Risk
has per definition the attribute as getting larger as more parameters
need to be considered. The adavantages and disadvantages are
different from company to company, depending on the structure and
planned pooling type. For instance, the right bank on your side is very
important. To find out who this bank could be is described here. In the
the following just a view arguments in a SWOT analysis which should
be considered very carefully:
Controlling
Be aware - cash pooling can be also a threat if rights and liabilites are
not clearly defined. For this we recommend a comprehensive Treasuy
Policy - see here.
Software Support
A proper management of a cash pooling may become quite complex
if there is no sufficient support by an adequated software. See here
how Cash Pooling can be managed easy and safe with the Cash Pool
Module in our Treasury Software STS.
Country specific Items
Depending on the country where the bank-account for the cash pool
is established, it is fully, partially or not allowed to operate such a
pool. Based on our experience with cash pool projects world wide we
composed a manuscript which gives an overview about the different
country-specifications. Read more in detail here.
Reasons for Cash Pooling
Optimal allocation of internal liquid funds and max. reduction of
external debts,
•
Reduction of financing costs on group level,
•
Improvement of investment return due to economies of scale,
•
Simplification of liquiditymanagagement on local level,
•
Reduction of external banking costs due to centralization,
•
Optimization of cash flow forecast because of coordination of
financing cycles,
•
Break-Even of a cash pool starts at around 300’000.- required
capital.
Contact us, we would be glad to show you the possible
opportunities!
