Cash Pooling comes in many varieties with one thing in common: it makes centralized cash management so much easier. However, cash pooling creases more benefits than many realize.
The first and widely recognized benefit is that cash pooling centralizes access to a combined cash balance. It allows treasury regulating the cash pool balance via a single treasury account in the pool as opposted it regulating all the individual balances on the accounts that that pooled and which may or may not be held in the name of treasury.
Another widely accepted benefit of cash pooling is the interest benefit: interest is calcualted over the net day fluctuating balances of all the accounts combined. The cash pool benefit is the difference between the interest that would have been calcualted on the individual or gross balances as opposed the interest calcualted on the net pool balance. In case of offsetting overdraft and positive balance this banefit can be substantial. However, even in case of all accounts carry positive balances there can be a interest balance benefit if the bank applies a tiered interest structure.
A benefit that is often overlooked, is the "non-correlation" effect. The cash in and outflows processed on the pool accounts are almost never perfectly correlated. This implies that the minimum of the pooled balanced combined is above the sum of the minimum balances of the accounts that are pooled and that cash pooling decreases the amplitude of the cash necessary to manage day to day liquidity. The difference between these sum represents the liquidity that can be unlocked from working capital. The less correlated cash flows patterns are and the more cash flow patterns are combined, the higher this liquidity benefit will be. Based on historic balances, the figure to the right demonstrates that the organisation could have ran its business with 6.4 miljoen or 42% less overdraft facilities if selected stand-alone accounts had been integrated in the existing cash pooling strucutre.
I have built the tools to quickly analyze the potential of alternative cash pooling structures.
