In corporate treasury, cash pooling refers to the consolidation of a company’s various bank accounts into a single account or “pool,” which is used to manage the company’s overall cash position. This allows the company to more easily track and control its cash flow, as well as take advantage of any available interest income or cost savings.
There are several types of cash pooling arrangements that may be used in corporate treasury, including zero balance account (ZBA) cash pooling, notional cash pooling, and hard cash pooling.
Zero Balance Account (ZBA) cash pooling
In a ZBA cash pooling arrangement, all of the company’s bank accounts are linked to a central account, which is maintained at a zero balance. Any excess cash in the individual accounts is automatically transferred to the central account, while any shortfalls are automatically covered by the central account.
Notional Cash Pooling
In a notional cash pooling arrangement, the individual accounts are not physically consolidated, but rather, the balances in the accounts are treated as if they were in a single account. Interest is calculated on the combined balance of the accounts, and the company is able to take advantage of any net interest income or cost savings.
Hard Cash Pooling
In a hard cash pooling arrangement, the individual accounts are physically consolidated into a single account. This allows the company to more easily manage its cash flow and take advantage of any available interest income or cost savings.
Advantages of Cash Pooling
There are several advantages of cash pooling in corporate treasury, including:
- Improved cash flow management: Cash pooling allows a company to centralize and consolidate its various bank accounts into a single account, which makes it easier to track and control its cash flow. This can help the company make more informed decisions about how to allocate its cash resources and manage its liquidity.
- Increased interest income: In a cash pooling arrangement, excess cash in individual accounts may be automatically transferred to a central account, where it can earn interest. This can help the company increase its overall interest income and improve its financial performance.
- Cost savings: Cash pooling can also help a company save money by reducing the need for multiple bank accounts and the associated fees and charges. It can also allow the company to negotiate more favorable terms with its bank, such as lower interest rates on loans or higher interest rates on deposits.
- Greater flexibility: Cash pooling can provide a company with greater flexibility in managing its cash resources, as it can easily transfer funds between accounts as needed. This can be particularly useful for companies with operations in multiple countries or currencies, as it allows them to quickly and easily move funds to where they are needed.
- Enhanced visibility: By consolidating its various bank accounts into a single account, a company can gain greater visibility into its overall cash position and make more informed decisions about how to manage its liquidity.
Overall, cash pooling can be an effective tool for corporate treasury departments to optimize their cash management and improve their financial efficiency.
Click and Scroll! Here are more articles that you might like…
OECD BEPS and Transfer Pricing – Differentiating In-House Bank interest depending on Balance Sheet
Tax considerations in light of Transfer Pricing when setting up Zero Balance Cash Pool arrangements
Making Your Treasury Cash Forecasting Actionable
Kyriba Day November 9th Utrecht
Kyriba Live Event 2023 in Paris
eBook | 5 Steps to Gaining Clearer Cash Visibility
How far ahead do Treasurers forecast?
Kyriba’s Currency Impact Report: Multinational Corporations Quantify FX Impacts Totaling Near Record $32.21 Billion
Embedded Finance to Embedded Treasury: Are Corporates Ready for the Transition?
3 Risks to Make Your CFO Approve Your Treasury Project
Building the Business Case for TMS Implementation
Unlock Your Treasury Expertise Today – Download Our Free eBook!
LIVE SESSION | Unlock the Benefits of Interim Treasury Management
Six Tips to Protect Your Organization Against Payments Fraud
3 Ways Liquidity Planning Technology Improves Cash Flow Forecasting Results
Three Reasons to Add Real-time Payments to Your B2B Payments Mix
Currency Impact Report October 2022
Brush up on your treasury knowledge? Get our eBook: What is Treasury?
Crisis After Crisis, Treasury Steps into the Advisor Role
Eurofinance remains THE event for corporate treasurers | By Pieter de Kiewit
5 Steps to Automate (and Optimize) Your FX Risk Management Program
Where did the treasury applicants go? | By Pieter de Kiewit
Meet our partners at the EuroFinance next week!
Could Stablecoins Drive Payment Innovation?
Quickly refresh your treasury knowledge? Download our eBook: What is Treasury?
RECAP | Cash and Treasury Management Event Copenhagen | By Pieter de Kiewit
What Does Real-time Connectivity Mean for Your Organization?
Approaches to FX Volatility
See Also
Cash pooling - KPMG GermanyPerfecting the Cash Forecast
Treasury in transition – explore the agenda for EuroFinance International Treasury Management
Subscribe and receive your 41 pages ‘easy-to-read’ eBook, What is Treasury?
The world’s largest treasury event is returning to Vienna in September | 10% discount via treasuryXL
Attend the 33rd Finance Symposium | 18-20 May 2022 | Mannheim
Your free eBook, What is Treasury?
EuroFinance International Treasury Management returns to Vienna | 21-23 September 2022
Changing priorities of corporate treasurers post-pandemic
Your Last Call | International Treasury Management Virtual Week | September 27 – October 1
International Treasury Management Virtual Week | Celebrating 30 years as the world’s leading treasury event
Global Treasury Americas | Planning the post-pandemic Treasury
Only 5 days left until the International Treasury Management Virtual Week 2020
EuroFinance International Treasury Management Virtual Week 21-25 September 2020
Cash Pooling – where is the money
Impact of Basel III on Notional Cash Pooling
The end of the Notional Pooling Era: What to do next?
Foreign bank accounts, how to include them in your cash pool
PreviousNext
Preferred partner
Cash Management topics
Cash Management
Cash Pooling
Investment Cash
Liquidity
Cash Forecasting
Search
Newsletter & eBook
Subscribe to our free weekly newsletter and receive your 41 pages ‘easy-to-read’eBook, What is Treasury?
The latest treasuryXL articles
Go to
- About treasuryXL
- Vacancies
- Partners
- Experts
- Privacy Statement and GDPR
Partner Program
Join treasuryXL as a partner!
The treasuryXL Partner Program is designed for organizations offering products or services in treasury, cash and risk management.
Contact us
treasuryXL
Kaldenkerkerweg 22
5913 AE Venlo
The Netherlands
Email: info @ treasuryxl.com
Telephone & WhatsApp: +31 6 21 30 37 44
Subscribe
Newsletter & eBook
Subscribe to our free weekly newsletter and receive your 41 pages ‘easy-to-read’ eBook, What is Treasury?
