Treasury Management: The Practitioner's Guide

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Cash Concentration

Larger companies with many subsidiaries, especially those with operations in multiple countries, maintain a significant number of bank accounts. This is an inefficient arrangement from the perspective of cash management, since the treasury staff must track all of the individual account balances. With such highly fragmented cash balances, it is extremely difficult to repurpose the funds for either centralized payments, debt paydown, or investments. An excellent solution is cash concentration, where the cash in multiple accounts is pooled. Pooling can be achieved either through physical sweeping (where cash is actually moved into a concentration account or master account) or notional pooling (where funds are not actually transferred, but balance information is reported as though physical sweeping had occurred). This chapter describes the various cash concentration strategies, the mechanics of pooling, and supporting policies, procedures, and controls.

BENEFITS OF CASH CONCENTRATION

The typical company has a number of bank accounts, each containing either a credit balance or a debit balance that is being covered by a bank overdraft. At a small-company level, and in the absence of a formal treasurer position, these balances are probably monitored by an assistant controller, with occasional cash transfers to cover debit balances. Interest income is probably minimal.

As the company becomes larger and the number of its bank accounts expands, the total volume of ...