Only 5 days left until the International Treasury Management Virtual Week 2020

| 16-09-2020 | Eurofinance | treasuryXL |

Don’t miss the Treasury Event of the Year! If you haven’t signed up already, here is a reminder to join this great virtual event with incredible speakers and live sessions.

Virtual Event

Now more than ever, we need to learn and engage with other treasury professionals around the world, so that we can navigate and overcome the unprecedented challenges we are facing.

As the current situation unfolds, the role of the corporate treasurer is evolving and becoming more strategic than ever before. The complexities and function of treasury within the business is changing even more rapidly. The question is: What does the future of treasury look like and how will this affect my team? And where can I turn for world-class advice on building resiliency, supporting the business and addressing future challenges?

Look no further than EuroFinance’s International Treasury Management Virtual Week taking place 21-25 September. It will see world-leading treasurers and economists come together to address these issues, deliver big picture global insights and share the essential granular knowledge you and your team need for the path ahead. In the spotlight will be the latest on cash flow forecasting, supply chain finance, tech, liquidity and FX and payments plus much more.

Speakers and Live Sessions

The line-up of speakers is impressive with the likes of Shell, Alibaba Group, HP Inc., eBay, Finnair, Microsoft, Intel Corporation, Schlumberger, Booking Holdings Inc. and Rio Tinto holding centre stage in one of the 75+ live sessions. But don’t worry if you miss a session, they will be available on-demand for you to watch at a time that suits you.

The custom-built virtual conference platform will bring the experience of a live event to life in a virtual world. It offers plenty of opportunities to network and learn from your global peers, plus a smart calendar to build your schedule.

Free Registration

The great news is, the 2020 event comes without a price tag! It is free for corporate treasurers. So, you can get all the world-class expert knowledge and insights you expect from the leading treasury event without the costs of registration, flights, accommodation or even expenses.

What are you waiting for? Set your treasury team up to thrive not just to survive.

Register for free today!

 

EuroFinance International Treasury Management Virtual Week 21-25 September 2020

| 25-08-2020 | Eurofinance | treasuryXL |

The pandemic sent shockwaves through global financial markets and confronted businesses with extreme scenarios.

Virtual Event

Now more than ever, we need to learn and engage with other treasury professionals around the world, so that we can navigate and overcome the unprecedented challenges we are facing.

As the current situation unfolds, the role of the corporate treasurer is evolving and becoming more strategic than ever before. The complexities and function of treasury within the business is changing even more rapidly. The question is: What does the future of treasury look like and how will this affect my team? And where can I turn for world-class advice on building resiliency, supporting the business and addressing future challenges?

Look no further than EuroFinance’s International Treasury Management Virtual Week taking place 21-25 September. It will see world-leading treasurers and economists come together to address these issues, deliver big picture global insights and share the essential granular knowledge you and your team need for the path ahead. In the spotlight will be the latest on cash flow forecasting, supply chain finance, tech, liquidity and FX and payments plus much more.

Speakers and Live Sessions

The line-up of speakers is impressive with the likes of Shell, Alibaba Group, HP Inc., eBay, Finnair, Microsoft, Intel Corporation, Schlumberger, Booking Holdings Inc. and Rio Tinto holding centre stage in one of the 75+ live sessions. But don’t worry if you miss a session, they will be available on-demand for you to watch at a time that suits you.

The custom-built virtual conference platform will bring the experience of a live event to life in a virtual world. It offers plenty of opportunities to network and learn from your global peers, plus a smart calendar to build your schedule.

Free Registration

The great news is, the 2020 event comes without a price tag! It is free for corporate treasurers. So, you can get all the world-class expert knowledge and insights you expect from the leading treasury event without the costs of registration, flights, accommodation or even expenses.

What are you waiting for? Set your treasury team up to thrive not just to survive.

Register for free today!

 

Notional cash pooling ondanks EU-wetgeving

| 08-08-2019 | ILFA Group | treasuryXL |

In this blog, a rather old topic is dusted off, namely Cash Pooling. Cash pooling is a method that makes a lot possible and ensures that a lot can be saved. The subject itself is not very “sexy”, but very useful in the practice of good cash management. Especially when you consider that the legislation concerning MiFID II, Basel III and IV can have quite some consequences for cash pooling and management and in particular for notional cash pooling.

Laat ik bij het begin beginnen, notional pooling houdt in dat banken voor u de saldi van bankrekeningen fictief bij elkaar optellen. Deze service wordt meestal tegen lage kosten, en soms zelfs gratis, aangeboden. In uw administratie verandert niet veel, maar de bank berekent de rente over dit totale saldo. Het levert rentevoordeel op, zeker als er een mix van rode en zwarte saldi op de bankrekeningen staat. Notional pooling is een typisch Nederlands product, omdat het binnen de Nederlandse wetgeving mogelijk is. Het enige issue met notional pooling bestaat bij het verdelen van de rentekosten. Het toerekenen van kosten is immers ook een incentive om die kosten te besparen, want rood staan is niet leuk. Als er voordelen te verdelen zijn, verdwijnt de incentive (deels) om de kosten te besparen.

De huidige situatie

Hoewel het binnen de Nederlandse wetgeving mogelijk was, doet de Europese wetgeving notional pooling in de huidige vorm de das om. Niet langer is het mogelijk om de eenvoudige, goedkope oplossing in te zetten die veel oplevert en weinig inspanning betekent. Nu moeten banken daadwerkelijk geld verzamelen, wat inhoudt dat er dagelijks afgeroomd of aangevuld moet worden en om de originele saldi te herstellen ook direct teruggeboekt moet worden. Voor die handelingen worden aanzienlijke kosten in rekening gebracht of uw bank stopt simpelweg met het leveren van notional pooling. Kortom, het voordeel van notional pooling verdwijnt of notional pooling in zijn geheel verdwijnt.

Verdwijnt het voordeel?

Gelukkig hoeft het besparen niet te stoppen. Het is mogelijk notional pooling op een geautomatiseerde wijze toe te passen door een toegespitst software-systeem in te zetten. Specifiek een systeem dat voor u afromingen en eventuele saldo-aanvullingen berekent, transacties uitvoert en rekening houdt met de rekening-courantverhoudingen die daar tegenover staan. De software levert als het ware een in-house-bank: echte banksaldi worden vervangen door rekeningen-courant. De software kost, afhankelijk van uw wensen, een fractie van de bankkosten.

Daar blijft het niet bij. Als u enerzijds leningen heeft afgesloten en anderzijds elke dag geld verzamelt om rentekosten te besparen, bestaat er nog een mogelijkheid om geld te besparen, verreken de twee met elkaar. Nu is dat simpeler gezegd dan gedaan. Banken vinden de combinatie namelijk fantastisch, u leent immers als het ware een deel van uw eigen geld. Banken zullen die mogelijkheid niet zo snel opgeven. Het is een spel, waarvan ik zeker ben dat u die uiteindelijk kunt winnen. De in-house-bank is namelijk bank-onafhankelijk te maken. Daarmee verdwijnt de basis onder het spel van de bank en moet de focus terug op dat waar ze goed in zijn: geld uitlenen. Niet uw eigen geld, maar echt geld.

 


Cash Pooling – where is the money

| 01-02-2018 | François de Witte |

The main objectives of the cash & liquidity management are to:

  • Have the cash funds available to meet all known and unknown commitments
    • In the right currency
    • In the right place
    • At the right time
  • Optimize the return of the cash and/or minimize the cost of the short term financing
  • Minimize external financing by using internal funding

One of the most important techniques to achieve a better utilization of the available cash is the “cash pooling” or, in other words, the concentration of the cash to make it centrally available. The commonly used techniques in the market are the following:

  • Manual cash concentration: Intercompany payments
  • Automated Cash Concentration: requires physical movement of funds
  • Notional Pooling: without movement of funds

In the present article, we will outline the current types of cash management tools, their advantages and the attention points.

Manual cash concentration: Intercompany payments

For companies, who have only a limited number of accounts to overview, it is recommended to set up a manual cash pooling. In this case, the treasurer overviews daily or weekly the balances of the different accounts, and when there are important debit or credit positions, he will initiate manual payments to balance the positions, and or to concentrate them on the central treasury account. If during the day, important movements take place, the treasurer can make some additional intra-company payments to balance the debit and credit positions. In order to avoid float, it is recommended to use the urgent payments clearing.

The main advantages of the manual cash balancing are the following:

  • The easy set up
  • The possibility take into account the cash forecasting
  • You do not always make daily movements, which facilitates the intercompany loan administration.

However there are some drawbacks / attention points:

  • There is a daily / weekly need to make manual interventions. However some treasury software packages provide a solution to automate this process (bank independent cash pooling)
  • The banks take additional charges for use of the urgent payments clearing, except if the payments are processed within the same bank
  • The overdraft credit lines of the participants are qualified as full lending limits, and hence for the banks there is a higher capital weighting
  • When different legal entities are involved, you create a lending /borrowing relationship between the participants. Hence there are legal and tax issues:
    • You need to foresee a intra-group lending agreement
    • There are possibly withholding tax, transfer pricing and thin capitalization issues
    • Within your group, you need to manager the intercompany loan administration.

Automated cash concentration

The automated cash concentration, also called cash balancing, is a pooling technique requiring a physical transfer of funds to or from the participating accounts to concentrator account. The pooling movements are operated automatically by the bank

The most commonly used cash concentration is the zero balance cash balancing, as illustrated in the drawing down below. In this solution, the balances of the participants are daily or weekly swept to a concentrating account.

Figure 1: Outline of the zero balance cash balancing

There are also other forms of cash concentration:

  • Target cash balancing, to keep a specific amount in each account
  • Threshold cash balancing, to move funds only when an account moves in excess of a figure
  • Trigger cash balancing, whereby the movements are only initiated if the balance of an account (debit or credit) exceeds a certain amount
  • End-of-day or intraday cash balancing
  • Domestic or cross-border cash balancing.

There are several advantages to this system, such as:

  • There are no manual interventions, as the system is automated
  • Several features are possible (multi-layer, domestic and cross-border, target balancing, …)
  • There exist a possibility to integrate accounts from third banks
  • The system discipline to participants
  • With several banks, the intra-day lines, and the intra-day debit positions do not require a capital weighting.

However there are also drawbacks / attention points:

  • For value-based cash balancing, there can occur reconciliation issues with ERP systems or treasury management systems, as they usually work on accounting balances
  • The cash balancing works only within the same currency. When you manage different currencies, different physical cash balancing structures need to be set up for each currency
  • When different legal entities are involved, you create a lending /borrowing relationship between the participants – see also point 2 hereabove
  • The automated cash balancing can only work within the same currency (mono-currency).

Notional cash pooling

The Notional cash Pooling is a cash pooling where there is no movement of funds. In such a pooling the credit balances of the participants are offset against debit balances of the participants. Hence the net balance of the group is used to calculate the debit or credit interest paid or received.

The system has a flat structure, which means that all the participating Accounts are basically equal to each other. However usually corporates designate one account as the treasury Account, which is then used to manage the system.

Figure 2:  Outline of the notional cash pooling

 

 

 

 

 

 

 

 

The main advantages of the notional pooling are the following:

  • The notional pooling does not require to move funds, and hence:
    • No intercompany loan administration
    • Less legal and tax issues
  • In some jurisdictions (e.g. the UK and NL) the notional pooling can, under certain conditions improve the balance sheet by offsetting surplus balances against group debt
  • The notional pooling can include different currencies.

However there are also attention points:

  • The full legal offset of debit and credit positions of different legal entities is an issue in several countries
  • In some countries notional pooling is not allowed
  • Basel III does not always allow that liquidity ratios are calculated by means of netting the outstanding balances of accounts in the notional pool. This means that banks must calculate their ratios based on the gross balances of the individual accounts. Hence they will also look to translate this cost in the pricing of the notional cash pooling.

Legal and tax aspects of cash pooling

Setting up a pooling requires some preparation, and some legal and tax issues need to be addressed, such as:

  • Is automated cash pooling (cash balancing or notional) authorized ?
  • For cash balancing with different entities
    • Transfer pricing issues – Arm’s length rule
    • Is debit interest an allowable deduction?
    • Withholding tax issues
    • Is thin capitalization an issue?

When setting up such structures, in particular when different countries are involved, you need to foresee a due diligence with legal/tax advisors and banks

For cash balancing with different legal entities, a requirement is also to be able to manage intercompany loan administration. There are banks and providers who come up with solutions in this area.

 

François de Witte

Founder & Senior Consultant at FDW Consult and Senior Expert – Product, Business development and sales manager at Isabel Group

 

 

Impact of Basel III on Notional Cash Pooling

|17-1-2017 | Arnoud Doornbos |

afbeelding

 

Since the start of the financial crisis a growing need for more bank independency with companies has arisen. Bank counterparty risk became an issue. A large cash management bank announced in 2015 to stop their transactional banking services for continental Europe. What will happen with current cash pools running with banks in the UK? Increased regulations (Basel III) may stop certain banking products.
All types of events where companies feel a growing need for more bank independency.

Basel III

In the coming years, banks have to prepare themselves for compliance with the new Basel III rules on financial institutions.
The financial crisis of 2008 brought the shortcomings of Basel II to light. The capital requirements for banks were found to be insufficient and banks were running risks which were not identified by Basel II.
Therefore the focus of Basel III is to restore previous mistakes and adding requirements to both the quality and composition of the capital held by banks and liquidity position and governance to manage the risks.

Effective liquidity management is a way to look for “Idle” cash. An increasing number of companies therefore choose for notional pooling as it enables them to gain more insight into their (global) financial position and in order to optimize the interest income on their accounts.
Simultaneously Basel III imposes stricter requirements on offsetting balances (credit and debit), and this brings notional pooling possibly into danger. The question is what impact the introduction of Basel III has to notional pooling services offered by banks.

Notional Pooling

Notional pooling is a mechanism for calculating interest on the combined credit and debit balances of accounts that a corporate parent chooses to cluster together, without actually transferring any funds between the accounts. It is ideal for companies with decentralized organizations that want to allow some autonomy to their subsidiaries, including their control over bank accounts.

Treasury Services- without notional pooling

Benefits of notional pooling

The use of notional pooling has increased tremendously in recent years. At the moment it is a commonly used structure to concentrate balances and maximize the interest income on bank accounts. In addition it will provide companies with an increased understanding of their financial position and the company is therefore able to manage their money more effectively. Another commonly used technique is physical pooling (zero balancing) where the money from the participating accounts is transferred via a physical transfer to a higher-level account. The difference between them is that with notional pooling the money shall be paid only virtual and with physical pooling a physical transfer of money takes place. By using physical pooling through physical money transfer, internal debt positions will be created. Notional pooling and physical pooling can also be combined in an overlay structure.

Liquidity management

Basel III introduces a number of new financial ratios that aim to strengthen the capital base of banks.
One of the most significant ratios is the liquidity coverage ratio which banks are required to hold in high-quality liquid assets (cash money or assets which can be sold on the market quickly). This liquidity coverage ratio shows how far banks are able to withstand sufficiently a ‘crisis’ on cash flows for a period of thirty days. Moreover, the new law increases the capital requirements for banks and make these requirements more risk-weighted than before. The requirements are also countercyclical, intended to encourage banks to build up more capital in economic good times.
Liquidity management is gaining popularity by two simultaneous developments. On the one hand, credit is a less attractive source of profit for banks, which enforced banks to shift their focus to activities without capital requirements. On the other hand, companies need to make optimal use of internal cash as bank financing is becoming increasingly difficult. Notional pooling offers the option to concentrate the balances at several (international) accounts and optimize the interest.

Uncertain future for notional pooling

Basel III does not always allow that liquidity ratios are calculated by means of netting the outstanding balances of accounts in the notional pool. This means that banks must calculate their ratios based on the gross value of individual accounts. To cover the negative positions in the notional pool banks need to hold more liquidity. The negative position is seen as overdraft, which is associated with unattractive Risk Weighted Asset (RWA) for the bank. The conditions for reducing this RWA vary by bank and are depending also on the central bank of an individual country. To prevent that banks are required to hold a higher amount of risk capital they must be in possession of a legal right of offset. However, the process to obtain this right involves a lot of time and high costs (both for the bank and the company) and requires the necessary legal and tax knowledge. First, the law in the jurisdiction of each participant of the notional pool must allow compensation in the event of bankruptcy. In addition each participant of the notional pool must sign a paper that allow them to guarantee for other participants. Finally, the company must demonstrate that netting has occurred periodically.

Regarding the future of notional pooling, there are a number of scenarios to think of when it comes to the continuation of this service by banks:

  • Banks will only allow entities in the notional pool if there is an enforceable right of compensation;
  • Banks will charge the higher costs related to notional pooling to the companies;
  • Banks offer notional pooling selectively based on the creditworthiness of the company.

If banks decide to increase the price for notional pooling, it is likely that companies will go for alternatives for their cash management activities (e.g. physical pooling). Therefore it is advisable to contact your bank regarding notional pooling, so you are not faced with unnecessary surprises.

Treasury Services monitors the developments in the Basel III framework closely and combines its expertise in the areas of Payments, Treasury and Risk in order to provide its customers the best advice.
The Treasury Services Cash Management Scan analyses the impact of Basel III on your current cash pools and will explain how to manage this in the future.

Bank independent Cash Pooling

Treasury Services has developed a solution to set up cash pooling structures completely independent from banks through software. This creates significant additional savings and advantages compared to a cash pooling solution with banks.

The bank independent cash pooling allows companies to pool different bank accounts with different banks in different countries.

The advantages are:

Treasury Services advantages Cash pooling tool

The solution we have developed is a complete solution. It does not only consist of a software solution, but also proposed changes for policies and processes, and we investigated the legal and fiscal constraints.

For  more information please refer to this link.

 

arnoud-doornbos

 

Arnoud Doornbos

Partner at Treasury Services

 

 

 

Foreign bank accounts, how to include them in your cash pool

| 21-06-2016 | Jan Meulendijks |

janmeulendijksSignificant balances on your foreign bank accounts which are really of better use in the country where your operation is? Include them in an automated cash pooling scheme so that all your funds are available in The Netherlands and no more unnecessary interest is paid!

There are a number of reasons why you maintain bank accounts in other countries (I will explain the advantages of that in my next paper), but once this is the case, you need to control them in the most efficient way and at minimum costs.

Dutch banks who offer international cash management solutions have several tools to achieve this:

1. International Balance Reporting

The banks where you hold your accounts report them daily automatically into your multi-bank internet banking tool (e.g. Access Online from ABN AMRO); balances as well as transactions. With this tool you can also initiate local or cross border payments from this account.

Most ERP-systems can reconcile this account information automatically into your general ledger.

2. Cross Border Zero Balancing (CBZB)

In case your foreign accounts are held with subsidiaries of your Dutch bank, the balances can be automatically swept (daily) to your central cash pooling account in The Netherlands or be supplied with funds in case of shortage.

3. Multi-Bank Cash Concentration (MBCC)

In case your accounts are held with foreign partner-banks of your Dutch bank the alternate MBCC system can be used to achieve the same effect.

Now, once you have the Balance Reporting part in place plus one or both options CBZB and MBCC, not only all account information is made available to you on a daily basis, but also the balances are swept automatically daily into your central cash pooling account in the Netherlands!

Results:

  • Automated reconciliation of account-information in your General ledger; no more loss of time/personnel processing data
  • Interest optimisation (your use of bank credit is reduced with the balances that otherwise are in your foreign accounts)
  • No manual handling

Setting up such an international cash management scheme involves some paper work and time (most of that at your bank’s side) but once it has been set up it is a major cost and trouble saver which you wish you had had 10 years sooner!

 

Jan Meulendijks

 

Jan Meulendijks

Cash management, transaction banking and trade professional