Cash Pooling
Short definition
Cash pooling manages group balances as one pot, by physical sweeping or notional netting, so surplus in one entity offsets a deficit in another and cuts external debt and interest.
Detailed explanation
Physical pooling (zero balancing) sweeps balances to a header account and creates intercompany loans. Notional pooling keeps legal balances separate and nets interest; some jurisdictions restrict it.
Legal entity, company law, transfer pricing, restricted payments and FX controls break the “one cash pile” illusion. Trapped cash does not enter the pool.
Why it matters for the CFO
Group liquidity headroom can look smaller than the external line thanks to the pool — or the reported cash can be unusable because of law. Banks wrap the pool with security and cross-default.
How to read it
The pool balance is a group total; the paying entity still needs its own minimum cash. Interest savings are real only if intercompany rates are arm’s length.
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Definitions are educational. They are not investment, credit or tax advice.