Cash Pooling Agreement Definition

To do this, the group will ask its bank to create internal accounts. These accounts are then synthetically merged into the main account. In this case, both partners will review their credit line agreements. Below are instructions for reporting the instruments awarded by AnaCredit banks to companies linked to a cash-pooling system. We give examples and an explanation of the AnaCredit report logic. The advantages of the cash pooling strategy may be as follows: depending on the legal circumstances of the contract between the bank and the counterparty group, there are different categories of cash-pooling agreements. This includes: There are two main types of cash-pooling arrangements: fictitious cash-pooling and physical cash-pooling. Because the companies in one group are organized independently of each other, their financial situation can be very different. This also affects their cash or liquidity requirements (i.e.

means of payment and cash equivalents). While one company finances itself with loans at market interest rates, another company may have less profitable financial investments. To remedy this imbalance, a cash-pooling system can be set up. This is usually led by a central financial management team organized by the parent company. Cash pooling is a technique used to balance funds within a group of companies. The main advantage of this system is to centralize money to get better interest rates. Determining the length price of an arm is a complex task and depends to a large extent on the specific facts and circumstances in the cash-pooling agreement. In order to apply the arm length principle to cash transactions, consideration should be given to the functions, assets and risks of each party to the agreement and then the most appropriate transfer pricing method should be chosen. How cash pool services should be distributed among the different participants. Since the facts and circumstances (such as the solvency of a participating company) may change during the year, it may be recommended to prepare a cash-pooling policy. In this document, how the transfer pricing method used within the group works and how the group can assuring how different credit ratings can be tested on a regular basis.


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