Liquidity management is an important treasury objective that is challenging because of the need to juggle excess and deficit cash positions across multiple entities, regulatory environ- ments and currencies. For medium to long term cash mismatches a combination of adjust- ing capital structures via intercompany and third party lending is the best approach. For the short-term—cash pooling—the offset of deficit positions for some entities with the surplus positions of others is the tool of choice. The benefit is elegant in its simplicity: the elimination of the bid/offer spread on these funds along with improved visibility and control of cash.

Treasury Alliance Group’s short guide reviews:

• types of pooling and their merits
• notional pooling mechanics
• description of physical pooling which “is often referred to as zero-balancing. It can be achieved in a single country or across multiple countries where the pooled accounts are in the same currency”
• hybrid arrangements
• choosing an approach
• implemention issues
• cost assessment
• pool location for USD
• providers of global and regional pooling
• tax considerations.

In conclusion: 

The complexities of designing and implementing pooling arrangements may cause some to question the efficacy of pooling as an approach to liquidity management. Despite these concerns, once established, pools are relatively straightforward to manage. Further, the ability to efficiently use all company liquidity to manage varying deficits or surpluses across the enterprise makes the work to implement pooling worthwhile. It is a smart way for treasury to improve the balance sheet but requires careful assessment and cost benefit analysis, close collaboration with tax, an evaluation of overall banking requirements and a focused project approach to select the correct structure and banking services. So although it is not a simple evaluation or a quick fix solution, the benefits will likely outweigh any initial hurdles.

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