Managing multiple accounts and maintaining requisite amount of balance, is supposed to be a very grueling task. Failing to keep the minimum requirements for your bank accounts can result in penalties and you end up paying fines for that account. The best way to tackle this situation is none other than the Cash Pool system. Cash Pooling is actually a cash management technique, implemented by companies that are holding funds with a financial institution like the bank. It allows companies for combining the credit and debit positions in multiple accounts into a single account. Notional cash pooling as well as cash concentration are techniques of cash pooling implemented, in order to cope with the unfavorable financial conditions. Cash Pool is the best place to guide you towards implementing cash pooling techniques in your business establishments for better revenues.
The notional cash pooling, urges the company to combine the balances of multiple accounts, in order to avoid transaction fees or low balance for a particular account of yours. Zero balancing or cash concentration is the process where the company accounts are physically combined into a single account for better benefits.
For cash pooling one needs the cash pooling accounts, so that the purpose is met to perfection. A cash pool account is nothing but a corporate cash management solution which is developed by the Swedbank. The main functionality of a cash pool account is the notional as well as cash pooling of funds in current accounts interlinked within a single group. Online data is available in the form of consolidated information, for the total funds of the group in the virtual pooling account. It follows the liabilities to the bank, general cash flow and even permits redistribution of funds among the group. Automatic pooling of funds can be done either daily, weekly, annual basis or monthly, depending on the suitability of the period, for the funds within a group. The cash pool account ensures analytical accounting for funds for various accounts of a company as well as accounting for funds of multiple companies’ current accounts. Cash pooling account is mandatory in order to avail the facility of cash pooling and stand straight during liquidation of any company within the group. The decisions to pull out from the cash pooling at critical situations, is taken by the board of all the companies.
The facilities favorable for companies included in cash pool are;
- Credit facility is available to all the group members being liable, separately or jointly, in order to discharge the liabilities.
- Management and maximization of returns on current assets for single company as well as a group of companies is the best outcome of cash pooling.
- The facility of automatic zero or target balancing and managing the accounts efficiently is another advantage of cash pool techniques.
- You can set up and manage an internal online credit market with the help of cash pooling.
- Cash pooling gives an opportunity to improve the amount of interest paid by the bank.
- For credit liabilities, lower interest payments are made to the bank that saves plenty of dollars for the organization.
Cash pooling is majorly of 2 types and we are going to elaborate it further;
Zero balancing and Notional Pooling
It is known as sweeping or cash-concentration and the best and easiest form of introducing cash pooling. The key figure of the debt ratio improves because of the shorter balance, which is a very appreciable plus point. The only drawback is shortfall of the pool leader, which later can increase the administrative work as all intercompany cash flows need to be automated. The cash flows in zero balancing or target balancing are physical. Banks facilitating cash pooling for their clients have a minimum requirement of BBB rating.
Notional pooling as per the name sake means the pooling form is not real, but is 100% interest optimization technique. No physical amount is transferred between any of the accounts and single balance accounts are counted together as well as netted against each other. The full interest is spread within the group but each member of the pooling system has his own bank account. Companies who don’t want to face credit crunches prefer, notional pooling in order save their business. it is best described as interest optimization facilities, devoid of the risks and loan facilities.