Notional pooling
Notional pooling
Cash pooling is a form of central corporate group treasury management. We distinguish two types of cash pooling, physical- and notional cash pooling. Notional cash pooling enables your multinational company to offset the debit and credit balances of the accounts of your individual entities.
Benefits of notional cash pooling
Notional cash pooling is a good way to optimise the use of your liquid assets. The balances of all the participating accounts are only settled with each other virtually, without the need to transfer the funds physically. This makes it by far the most popular type of cash pooling. Moreover, it enhances the interest rate terms of your individual entities’ accounts and this leads to an optimisation of the total return on the cash of the entities and reduces external financing costs.
Challenges associated with notional cash pooling
One of the main challenges you may face is the short termt basis for cash pooling.When short-term becomes long-term, it is necessary to reevaluate and potentially reclassify the transactions. In addition, it is important to determine at arm’s length compensation for both the cash pool leader and the participants.
The cash pooling agreement
Quantera Global helps you in drafting the intercompany cash pooling agreement by performing a transfer pricing review. This agreement is the base, in which all terms and conditions are laid down.
How Quantera Global supports your company
- We design and analyse the cash pooling structure
- We support with determining which terms and conditions are at arm’s length
- We review the cash pooling agreement to ensure compliance
- We determine the remuneration of the cash pool leader
- We document the risk exposure of, and the remuneration for, the cash pool participants and relevant cross-guarantees
With the support of Quantera Global, you will have a solid notional cash pool arrangement and related cash pool agreement with clear terms and conditions. Your company will have a well-developed cash pooling structure, including documented compensation for the notional cash pool leader and participants.
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