Corporations intend to optimize their cash management and improve liquidity with Cash pooling. However, it involves the consolidation of cash balances from different accounts or subsidiaries within a group into a single, centralized account, which is not always easy. Once accomplished, though, this allows the organization to manage its cash more efficiently, reduce borrowing costs, and maximize interest earnings on surplus cash.
In Cash Pooling, the actual funds from various accounts are physically transferred into a master account. This central account then manages the cash flow for the group, redistributing funds as needed. Physical pooling can involve more complex arrangements, such as zero-balancing (where subsidiary accounts are swept to zero at the end of each day) or target balancing (where accounts are maintained at specific target balances).
Read the full article on the Four Benefits of Cash pooling for corporations.
