Notional pooling is a technique that allows cash optimization by consolidating the balances of multiple accounts, oﬅen in different currencies, without physically moving funds. Instead of moving funds, notional pooling tracks the balance and calculates interest or charges based on net positions of all accounts in the pool. This supports the need for short-term working capital by offsetting debit balances in one part of the business with credit balances elsewhere, without the need to move money around. There’s no commingling of funds, and individual account positions are maintained. Notional pooling is particularly useful for global businesses that operate in various currencies. Funds in one currency offset the deficit in another currency, reducing FX costs while optimizing interest across a basket of currencies. .
Notional pooling is not permissible in all jurisdictions. While it doesn’t result in intercompany loans, crossguarantees are required. Carefully consider legal, regulatory and credit risks associated with notional pooling and work closely with your banking partners while considering this cash management technique.
This sophisticated solution is most oﬅen used by large multinationals. An IHB uses a company’s own resources to manage all financial transactions and fund each business unit, establishing funding parameters by setting up intercompany loans, cash pooling arrangements or equity investments within an organization. It’s a cost-effective way of consolidating treasury functions into one central entity, removing the need for each subsidiary to work through a different local bank. This centralization gives you visibility into all available resources, enhancing cash oversight and allowing you to allocate funds strategically by assessing the financial requirements, growth potential and risk of each unit.
You’ll need to determine interest rates or returns expected for funds associated with the IHB, helping establish a fair cost of capital across the organization. There may also be significant regulatory requirements.