Cash pooling is a financial strategy whereby a company maximizes its credit and debit positions. Cash pooling can also be used to reduce fees a company pays. Basically cash pooling makes the most out of the credit resources a company has available to it.
There are a few ways in which a company can cash pool. One technique is known as notional cash pooling. This technique involves pooling the companies funds into their most active bank account in order to avoid paying finance fees. The net result is the company reduces its expenses.
Cash concentration is another technique used. In this scenario a company pools money into an account in order to earn interest on its balance. Many companies will have a checking account that they pay all their expenses out of. Some accounts will pay out interest hikes for accounts that stay above certain monetary levels in the account. The idea is to take advantage of this fact and earn some extra money for the company.
Cash pooling usually helps a company manage its cash flow. Cash pooling can help a company avoid expenses and also make money from interest on their bank accounts. Cash pooling is particularly useful in a recession where companies need to save money any way they can. It can also be used after a recession in order to regain financial strength.