Managing liquidity as efficiently as possible in a strategic priority for any CFO, especially in an increasingly complex and competitive business environment where the ‘speed’ of change is constantly accelerating.
Within this context, one of the most effective solutions is cash pooling, a system that allows centralising and optimising balances between accounts, especially in companies with multiple subsidiaries and/ or divisions, and even more so if they are distributed in different countries.
We should not forget that, for a company, there is nothing more important to consider than the liquidity, which we could liken it to as the ‘oxygen’ that allows the company to operate. Therefore, maintaining an optimal level during the different stages of an organisation’s life is essential to ensure its good functioning.
It is at this point where the figure of the CFO acquires maximum relevance, as the ‘main manager’ of the company’s financial resources, where having a cash pooling system allows him/her to ‘consolidate’ the cash positions of the different accounts, as if they were a single one, automatically offsetting debit balances with credit balances and thus strengthening corporate financial management.
In order to successfully implement a cash pooling system, the first step is for the CFO to analyse and understand the main inflows and outflows of funds for each of the accounts, with the intention of pre-optimising the existing structure.
An interesting technique, which is not at all complex to implement, is to allocate specific accounts that are only used to receive receipts, from others that are used to make payments. This improves control and visibility of cash positions.
Once the bank account structure has been ‘simplified’, the next step is to determine which bank accounts will be the main ones, and likewise to define which financial institutions will be the ones to work with in the future.
The main objective is to maximise the use of the available funds while minimising any associated financial costs, regardless of the type of Cash Pooling selected, in the sense that there is a physical transfer of money or the notional mode is used, i.e. no cash movement between the accounts.
At the same time, the ‘design’ of the strategy, the CFO should choose the technological platform to use, considering their costs and capacity. The aim is to achieve the greatest possible automation of the company’s treasury.
Once the design of the model has been finalised, it is up to the CFO to start the implementation phase, where he/she must ensure the best possible coordination between internal teams and between financial institutions.
It is also essential to take into account the local and fiscal regulations applicable to each business and country where the company operates, as non-compliance in this respect may lead to taking unnecessary risks.
In itself, the success of any cash pooling system, is going to depend on the co-ordination that exists between the people in the different subsidiaries and business units. For this reason, it is the CFO himself who should exercise active leadership, resolving any incident that compromises its correct functioning.
Once the implementation is finalised, a system of constant supervision must be established over time, with the objective of guaranteeing the correct functioning of the model. If this is not the case, the CFO should also be in charge of making the necessary adjustments to ensure its effectiveness.
Thus, cash pooling is presented as a key tool that not only facilitates, but also enhances the CFO’s role towards efficient management of the financial resources of the organisation, strengthening the company’s financial resilience in today’s world of constant change, where nothing indicates that this will change in the future.
