What is cash pooling?

What is cash pooling?

Cash pooling is a system by which a company or group of companies concentrates or centralizes their balances in order to obtain a global net position, either in a current account or in consumer credit. The rule of thumb is: the fewer banks operate and the fewer accounts there are, the better.

What is cash pooling with example?

The cash pooling (or cashpooling) is a centralized cash management strategy to balance the accounts of a group's subsidiaries. ... In the case of a large group composed of a powerful holding and weaker subsidiaries, effective cash pooling may allow access to financial markets.

Is cash pooling allowed in USA?

The Office of the Comptroller of the Currency (OCC) does not allow notional pooling so it is not practiced in the USA, though most large US banks offer notional pooling in their offshore branches and subsidiaries.

Is cash pooling allowed in India?

Liquidity Management Notional pooling and multilateral netting are not permitted under Indian law.

How does cash sweep work?

HOW DOES CASH SWEEP WORK? ... In a cash sweep, an investment firm figuratively sweeps clients' uninvested cash balances into a (again figurative) dust pan and empties it into either FDIC-insured accounts held at one or a network of banks, or into one of several money market mutual fund offerings.

Why is notional pooling not allowed in India?

Notional pooling is not allowed in India. The solution takes into account the corporate's excess cash position across various currencies and countries with a bank. The end-of-day account balances in various countries are collected and notionally converted into a base currency.

What is a cash pooling system?

• To remedy this imbalance, a cash pooling system can be set up. This is usually run by a central financial management team organized by the parent company. Cash pooling is a technique used to balance funds within a group of companies.

What is a zero- or target cash pool pooling account?

• 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.

What are the advantages of cash-pools?

• Optimization of financial resources: greater availability of funds is avoided with dispersed balances across accounts Cash-pools can improve risk management effectively due to the ease of monitoring changes in interest rates.

How does a cash pool leader work?

• In the first case, the cash pool leader really has a master account to which one group company pays in excess funds and from which the other draws liquidity. On the other hand, it is also possible to leave the funds where they are and only allow them to flow virtually between the companies and the master account (known as notional pooling).