A tool to improve the performance of the Treasury Department…
The cash pooling is a cash flow management mechanism aiming at optimizing the management of the bank balances. Its principle is to put in common all the financial resources of all companies of a group and manage all their bank accounts in a central and single point.
The interests and objectives of the implementation of a cash pooling system are undeniable: to offset credit and debit balances in order to optimize the financial costs, to streamline the banking environment and to negotiate optimal financial conditions by seeking a mass effect. Furthermore, cash pooling allows to centrally manage and mitigate currency and interest rate risks and to secure cash positions by controlling the fraud-, the country- and the counterpart risks. More broadly, it is one of the elements which allow structuring a group, controlling subsidiaries and formalizing the reporting.
If this definition of a cash pooling system seems obvious, its implementation requires being cautious on a number of aspects. Once the feasibility of such a project is established, the implementation of global cash pooling will be framed from a regulatory, a technical, a legal and an economic point of view in order to be perfectly suited to a specific group, to its resources and to its information systems.
… whose implementation is a structuring project.
The implementation of a cash pooling system is a key project for a Group Treasury Department which must be led according the rules of project management. This project consists of three main steps.
Firstly, it is essential to properly determine its scope and to evaluate its economic challenges by doing a feasibility study. If it seems to be self-evident, it remains important that this study must not neglect certain aspects of control and security. A particular attention has to be paid to address the approvals, the risks and their hedging, the standards and the procedures. Made from an evolutionary perspective, it will take into account any changes to come in the centralization’s scope and scale.
If the feasibility study is successful, the targeted cash-pooling system’s structure and mechanisms will be defined in compliance with regulatory, legal, tax and economic considerations, taking into account available resources and bank and risks conditions.
The determination of the implementation method will then enable to schedule the action plan and the transversal projects which will support the selection of bank solutions. Treasurers will understandably tend to give their preference to their historical partners and to banks operating globally. However, services offerings are disparate and not all of them can ensure multicurrency, notional … A central point of the implementation will then be the call for tenders and the thorough analysis of the services offered to assess the actual capacity of centralization, the proposed management tools and the interest calculation method.