A company or group working at international level generally find themselves faced with holding bank accounts in different countries. The accounts department is responsible for organising payment flows between the accounts with credit balances and those that are overdrawn. Coordinating these accounts involves monitoring the balances (reporting), sending payment orders, calculating interest rates and exchange rates and cross-border transfer fees.

Vincent Duquesne uses notional pooling for the European cash management of his group, Millennium, which is active in the chemical sector in Europe and world-wide.

Centralised management
"With notional pooling, I manage twenty-four accounts from Brussels; these include the accounts of the group's three production units in France and England. The interface immediately provides me with on-screen information on the credit or debit balances of all of the group's accounts. This overall view is much better than the previous system. Instead of twenty-four accounts each with their own separate identity, I now have a group of twenty-four interlinked accounts which I coordinate and which are subject to a single set of financial terms and conditions covering the whole of Europe, which have been negotiated in advance with Fortis Bank."

Simpler administration
For Millennium, the daily processing of information from multiple destinations took up considerable resources. "I would estimate the saving due to use of this system at two full-time equivalents. This is significant for a structure that is not able to earmark large resources for its accounts and tax management."

Funds available more quickly
Previously, any transfers between accounts required local intervention. This accounting dispersion meant a higher number of intermediaries and longer transaction times. But the cash pool we have set up reduces the deadlines. As soon as the funds enter the pool, they are immediately available to all the accounts. This is speeded up by collection that is still local but that immediately translates into an improvement in the group's position.

"In Italy and Spain, the cash pool makes it possible for me to save a week on any collection because the customers credit a local account instead of crediting a foreign account. Collection of receivables in France, largely based on the LCR system, has been facilitated by the implementation of a system of electronic transfers managed from Brussels. Compared with the method previously used, which was based on paper remittances, this system has made it possible for us to collect LCRs under good value systematically, whereas physical remittance of LCRs in paper form meant a delay of some sixty days."

Interest offsetting
Coordinating balances is a key factor in international cash management. Notional pooling offers a unique solution: it is rather like a series of interconnected vases, whereby balances are automatically offset, so reducing the difference between high interest on debit balances and low interest on credit balances.
"The principle of automatically offsetting balances guarantees customers that inter-account transfers will not affect the overall interest on the group's capital."
At the end of the month, the system recalculates interest on all the accounts on the basis of the group's net daily balance, offsetting debits and credits virtually, as if all the debits had been settled. Each of the companies in the multinational pool thus receives more interest in proportion to its contribution to the process of offsetting.

Benefits of a virtual system
"Before setting up the cash pool, all international payment transactions occurred physically: the money involved crossed borders, resulting in considerable bank charges for international transfers. What is more, these transfers created inter-company loans and this meant calculating interest and retaining tax on payment of some of the interest. With notional pooling, there are no longer any offsetting transactions between accounts. Incoming and outgoing payments are replaced by virtual balancing, without any transfers, inter-company loans, booking or calculation of interest. Surplus funds used to offset a debit balance in an account in London remain physically in Milan. The link between the two accounts occurs within the pool, without any costly international transfer."

Multi-currency pooling
"In the previous system, each legal entity in the Millennium group had a separate account for each currency. Now, the offsetting of credit and debit balances covers accounts held in different currencies. Within the pool, we can overdraw an account in sterling and offset this with a credit balance in euros. Previously this meant delays and international transfer charges. The saving in terms of exchange transactions is impressive, as is the time saved since the manager is no longer required to make swaps from day to day."

The multi-currency aspect also influences the monthly calculation of interest on the accounts and the daily calculation of the overall pool balance, in the currency in which it is denominated (in this case, euros). Finally, within the pool it is no longer essential to immediately offset a debit balance in one currency with a deposit in another. The manager may decide to wait some days for the currency expected to be credited following a customer payment.

Convincing the Americans
Millennium is an American group. Notional pooling is virtually unknown in the US. "We had to devote much energy to introducing the notional pooling package and convincing management in the US of its benefits. Two other factors made our proposal suspect. The first involved our wish to manage all payment flows from Brussels. It is very difficult for Americans to envisage the possibility of undertaking international cash management anywhere other than London. And Americans tend to think that to manage an activity at European level, it is essential to use the very biggest names in the banking sector. Today, after the notional pooling system has been used without any hitches for six months, they no longer envisage any other solution."