New bank services and advanced technology enables treasurers to implement multi-currency, multi-country and multi-bank cash pooling in Asia. This article discusses why treasurers should invest in cash pooling to save money.
Cash pooling is a best-practice technique to centralize and optimize liquidity through balancing excess and deficit cash across the enterprise. By combining positive and negative positions from various subaccounts into one master account, treasurers can save considerable amounts of money by optimizing interest income, bank charges, float and tax costs. Additionally, the costs of short-term funding can be reduced significantly.
Understanding the benefits of cash pooling, Asian treasurers are increasingly investigating how to apply this technique. As cash pooling regulation is very country-specific, with differences spanning interest levels, capitalization rules, transaction and tax regimes, conversion and mobility of currencies, to general prohibition of pooling methods, treasurers have to assess carefully.
However, there are three main drivers of cash pooling in the Asia Pacific region:
1. International expansion
Asian markets are growing rapidly as intra-regional trade increases and Asian and Australian corporations expand internationally. Funding expansion requires both structural and working capital.
Thus, treasurers are anxious to find idle cash, concentrate it and shift it from low interest regions to the most profitable markets leveraging economies of scale and favorable regulatory and tax regimes.
2. New bank services
Aligned to corporate expansion, banks are also seeking to expand their geographic footprint in order to retain clients and gain further business. Driven by share-of-wallet, competition from international banks and their clients’ new requirements, an increasing number of banks are improving their corporate services to simplify cash management and improve liquidity accessibility.
In particular, banks are assessing corporate services that enable comprehensive cross border, cross currency and multi-bank cash pooling capabilities.
3. Enterprise-wide integration
While growing internationally, multinational corporates (MNCs) are increasingly building regional treasury centers offering shared financial services to local subsidiaries.
Benefiting from regional expertise and partnerships, these regional centers are acting as “in-house banks,” dis-intermediating their bank’s pooling and cash concentration services to lower fees and streamline bank account management.
By utilizing the same technological environment as a bank, corporate treasury is able to globally manage liquidity, costs and risk across the enterprise more efficiently.
Geographic expansion increases the need for day-to-day cash control and demands a holistic view on liquidity and risk, involving multiple currencies, countries and banks.
As new currencies and regional regulations lead to more complexity in cash management and cash pooling structures, treasurers are considering investing in more innovative technology to help achieve their goals and stay ahead of the competition.
By investing in a cash pooling solution, treasurers can optimize interest income, reduce funding costs and provide return on investment (ROI).
Corporates can access advanced cash and liquidity management in two ways: they can utilize a bank service or they can invest in a Treasury and Risk Management (TRM) solution that has integrated cash polling functionality.
The advantage of a comprehensive TRM solution is that it not only helps treasurers to gain an accurate picture of enterprise-wide cash and control liquidity, but also provides comprehensive risk capabilities truly needed in today´s volatile and uncertain global markets.
Cash pooling is a technique that is becoming easier for corporates to apply, especially in Asia Pacific, where it is increasingly practiced, taking corporate treasuries in the region to the next level.
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Asian Banking & Finance. The author was not remunerated for this article.
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Tony Singleton is Managing Director Asia Pacific at Reval. He possesses a wealth of software sales, business development, and general management experience which he uses for the company’s expansion through Australia and Southeast Asia.