Currently Dutch Banks are offering their corporate clients a unique cash pool service in which a number of individual accounts were treated as a single account by daily netting the positions of all underlying accounts. An ideal cash pool mechanism without movement of funds from accounts. This system was used for the daily approval by the bank of outgoing flows (fiat) and the quarterly assessment of the interest per account and the overall net interest position. Due to the new regulations of the Dutch Central Bank, this unique Notional Pooling era (in Dutch: Rente- en Fiatstelsels) in the Netherlands will shortly come to an end.
Especially for companies with numerous subsidiaries and accounts, this so called “Rente- en Fiatstelsel” was an ideal vehicle of sharing the total position from a cash management/ treasury perspective, while seemingly leaving some autonomy with the subsidiaries. The typical Dutch “notional pooling” option was not available elsewhere in Europe and was therefore an unique feature.
As stated earlier, the notional pooling era is about to come to an end and therefore Treasurers have to consider other options of concentrating the cash. The most obvious alternative will be cash concentrating using Zero Balancing, a technique commonly used outside the Netherlands and already supported by most banks.
When implementing Zero Balancing, the Treasurer needs to consider a number of consequences of this alternative such as: Intercompany Loan administration, subsequent interest calculation, administrative recording of the revolving credit arrangements with the subsidiaries involved and setting up interest rates at armth length.
Day to day reporting on intercompany position
Although, from a Treasury perspective, cash concentration will still be feasible in the Zero Balancing setting, the information on the individual subs' position needs a lot of consideration. A number of Treasury Management Systems are able to cover the above mentioned functionalities. Nevertheless, there will still be a need for a system that will show the subsidiary’s position on a daily basis as though the actual Zero Balancing did not take place. In other words, a system that will show the intercompany balance of each subsidiary and will also guard the actual debit position of the sub per day . Since the daily bank statement will only mention a zero opening balance for each subsidiary account, the Treasurer has no means available to daily control the extent to which the subsidiary uses the overall position of the group. In the past banks were able to control the spending of the subs by implementing sub credit limits. In the Zero Balancing situation, most banks are not capable of guarding the spending limits on account, or group of accounts level.
Control on outgoing flows by implementing virtual overdraft limits
What the Treasurer therefore needs is a cash management tool that controls all outgoing flows. Not only from a validation and authorization perspective, but also from a cash management position point of view. This implicates that this tool will monitor all outgoing flows per account, in reference to the actual intercompany balance on the account and the permitted overdraft on the account. If the total amount of outgoing flows exceeds the overdraft limit, the Treasurer then will be able to stop the outgoing transactions. With such a tool in place, the “Notional Pooling” situation can be revived again in a more or less virtual setting. This means that the subsidiaries still have maximum visibility on their individual accounts while the treasurer has a clear view on his daily position and can control the outgoing flows per subsidiary according to the internal agreed boundaries.
In order to develop such a tool, the information on all outgoing flows should be daily combined with the incoming statement files as provided by the banks. PowertoPay, already provider of a bank agnostic connection platform, is in the ideal situation of adding the Virtual Pool Module to its Corporate Payment Hub. This module will provide the treasurer all control that is needed to steer and to control the cash management of the company while also providing the subs with all information needed to support their actions.
PowertoPay will launched this new Virtual Pool Module in Q2 2017. Please contact us if you need more information on this tool.