Cash pooling is a cash-management tool used by Multinational Enterprises (MNEs) to efficiently manage the short-term liquidity requirements of the various entities involved in the enterprise. This intra-group financing tool reduces the reliance of MNEs on third-party financing, thereby reducing banking costs and reducing financing needs by offsetting debit account with credit account. Centralizing the control and management of the shared cash pool to a single entity within the multinational group additionally allows all the cash pool participants to benefit from an optimization of the shared resources, better risk management and a better position towards third-party banks or financers.
The advantages of cash pooling arrangements over regular loans could be summarised as follows:
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