Companies are looking for ways to efficiently manage cash as they grow internationally.
While pooling is not new, it doesn’t become relevant for companies until they become global, or until they have reached their limits for operating manually. At a late 2014 meeting of The NeuGroup’s Global Cash and Banking Group, one member company shared details of its cross-currency notional pooling project. Also on hand was meeting sponsor Reval, which discussed the value of pooling overall, and why the penalties can be harsh if you don’t get it right.
One takeaway from the session was that the best pooling structure for one company may not be the best pooling structure for another. The depth and breadth of a company’s pooling structure will depend on many factors, including legal structure, country presence and centralization of the company’s finance team operations. While some companies would prefer to pool at a regional level, some others will pool at a global cross-currency level or global multi-currency level. At the end, pooling is about one’s treasury operations running more efficiently and at a lower cost while minimizing risks.
GCBG members were also encouraged to think like a shareholder and ask the company’s tax and legal departments to get on the bandwagon. That is, as cash managers make decisions, it is important to focus not only on the treasury implications of said decision but also on its overall effect on the company value; engage other areas and have them see their impact on the bottom line. This comprehensive approach will lead to better results, especially if tax and legal get on board with this way of thinking.
Also look for what companies are doing things right and look to emulate the process. In other words, leverage best practices of one’s peers. Pooling is not new so there should be plenty of experienced companies that would be willing to share their implementation do’s and don’ts.
For its part, Reval suggested considerations for setting up a pooling structure. These include:
- Set realistic objectives when starting out.
- Stakeholders should understand their roles.
- Well-disciplined project management.
- Senior level sponsorship.
- Engage IT as a partner early on.
- Identify any resource constraints.
- Communicate up and down frequently.
- Understand the options and landscape.
- Stay on task, keep the objectives in your sights but adjust to challenges as they are presented.
- Work with legal and tax; bank should be a resource as well.
- Bank providers are part of the bank relationship strategy.
As treasury managers keep looking for more efficiency, global notional pooling will become more common and popular. The implementation complexity may have held some companies back in the past, but the market is getting ripped for this kind of structure.