What is cash pooling?
Cash pooling is a treasury technique that combines the bank balances of a group's companies so that surplus cash in some offsets borrowing in others. In physical pooling, balances are actually moved into a central account; in notional pooling, they stay in place and the bank calculates interest on the combined position. Either way, the group uses less external debt.
Also calledphysical cash poolingnotional poolingzero balancingcash concentration
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- Types
- Physical and notional
- Creates
- Intercompany loans (physical)
- Aim
- Less external borrowing
How cash pooling works
In physical pooling, often called zero balancing, the bank sweeps each participating account to or from a header account at the end of each day, leaving subsidiary accounts at zero or a target balance. Every sweep creates an intercompany loan between the subsidiary and the pool leader, which must be recorded, priced at arm's length for transfer pricing and reconciled. In notional pooling, no money moves: the bank offsets debit and credit balances for interest purposes, which avoids intercompany loans but is restricted in some countries and by bank capital rules. Pools are usually set up per currency, with cross-currency pools more complex. Treasury systems track the resulting positions, intercompany balances and interest allocations. Embat automates multi-entity cash positioning, intercompany netting and interest accruals.
Common questions
What is the difference between physical and notional pooling?+
Physical pooling moves cash into a central account each day. Notional pooling leaves cash where it is and offsets balances for interest only.
How is cash pooling accounted for?+
Each physical sweep creates an intercompany receivable or payable between the subsidiary and the pool leader, with interest charged at arm's length and eliminated on consolidation.
Does cash pooling raise tax issues?+
Yes. Interest rates on intercompany positions must meet transfer pricing rules, and some countries restrict pooling or treat long-standing balances as loans or deemed dividends.
Treasury software for cash pooling
Part of Accountio’s accounting technology coverage · Glossary
