This lesson examines the structures and techniques used to optimise cash and minimise interest expense while maintaining operational flexibility.
5.1 Cash Concentration and Pooling
The ACT syllabus requires learners to “Optimise net interest expense or income whilst safeguarding the operational flexibility and reputation of the organisation by differentiating between the cash management structures available” . Key structures include:
-
Notional pooling: A method of interest optimisation where balances of multiple accounts are netted for interest calculation purposes, without physically moving the funds . This reduces interest costs while maintaining individual account structures.
-
Cash concentration: The process of sweeping surplus funds from subsidiary accounts into a central account to maximise investment returns and reduce borrowing costs. Techniques include zero balance accounts (ZBAs), target balance accounts, threshold accounts, and overnight sweeps .
-
Payment and collection factories: Centralised processing of payments and collections to improve efficiency and control .
-
Shared service centres: Centralised units that handle transactional and administrative functions, freeing up treasury to focus on more strategic activities .
5.2 Netting and In-House Banks
For multinational corporations, more sophisticated structures can be used:
-
Intercompany netting: Offsetting intercompany payables and receivables to reduce the number of cross-border payments and minimise FX exposure .
-
In-house banks: A centralised entity within a corporate group that provides banking services to its subsidiaries. This can centralise funding, manage intercompany loans, and streamline cash flows .
5.3 Comparing Local and Global Structures
The ACT syllabus also requires learners to differentiate between “Local compared with global cash management structures” . Local structures are focused on managing cash within a single country or currency, while global structures address the complexities of managing cash across multiple countries and currencies. The choice of structure depends on the organisation’s size, geographic footprint, and risk appetite. The ACT’s Certificate in International Cash Management (CertICM) is designed to provide more in-depth knowledge on this topic .