Cash Pooling Virtual, as mentioned, was first a type of optimization of the result of the percentage group in Polish realities. This solution does not involve a physical transfer of funds (there are no daily accounts visible on bank extracts). Under the scenario “what would it be like to carry out a physical transfer?” (there is a word “what-if script”), the result of virtual consolidation of balances is calculated.
This pooling is offered in several models that depend, among others, on the available technological infrastructure of the bank. The banks calling the virtual pooling service in their offer differ in the calculation technique used.
The solutions involve mathematical calculation of the group interest result one of them assumes the operation of technical (helpful) accounts. They are invisible to the customer and are used only to calculate the virtual balance. Source accounts are transferred to technical accounts at the end of the day.
Each working day, at a specified contractual time, the current accounts of the participants of the service shall determine the measures subject to "virtual" consolidation and transferred to technical accounts.
In one of the banks, the transfer takes place in a proportionate manner, according to the calculated share ratio (i.e. as a result, the sum of the balances on all the ancillary accounts is to be "0"). In the next the working day, before the commencement of the settlement day, the conversion of the amounts from technical accounts to the participants' current accounts shall be carried out.
Interest on balances (negative or positive) in technical accounts shall be settled in weight or in favour of the current account of the participant concerned.
Interest management also occurs in virtual schemes not using technical account infrastructure. one of the oldest market models assumes a comparison of the actual day-to-day interest on the participants' accounts with interest calculated on the virtual consolidated balance.
Difference between these two the values are referred to as the interest premium, accumulated until the end of the month to be separated between participants. Its allocation shall take the form of interest, positive or negative, depending on the amount of the balances.
POOLING WITHOUT THE BANK?
The management of the group's funds and the performance of similar effects to those described above can also be done without the bank. This concept is referred to in English-language literature as Independent Cash Pooling Bank.
There is no banking solution on the Polish market allowing multi-bank pooling, and if, for some reasons, the financial resources of companies belonging to the group and cash flow are dispersed in different banks (e.g. credit agreements require this), the launch of single-bank pooling may be difficult or impossible.
The solution supporting the percentage position of members of the group and improving their liquidity situation can then be internal pooling, prepared and managed at group level. It is usually triggered by a liquidity management unit in a group.
Such intra-group financing shall be based on loans which the parties shall grant to each other.
For end-of-day participants, the negative financial effect will be to obtain a favourable interest rate on borrowed funds, and for participants, the granting of loans within the group is an attractive alternative to the placement of surpluses (under conditions more favourable than short-term bank deposits).
The donor (donor) lends the recipient(s) the amount needed to minimise or eliminate the outstanding debt. The following day there is usually a return transfer to the lender’s account (or accounts) (borrowers).
This mechanism involves, indeed, the elimination of the banking costs of the pooling service (although the preparatory analysis should take into account the costs of transfers under SORBNET), but the perspective of many preparatory and administrative activities should not be underestimated.
It may be a challenge to agree on this process between companies.
It is not only necessary to appoint a cell responsible for operating and clearing operations, but also to carry out a thorough analysis of the company's liquidity forecast – it is important to make the expected daily use of the current accounts and the expected amount of free funds of potential lenders.
It is also important to establish the key according to which the accounts will be supplied (e.g. who will be the lender in what part – the possibility to use the model from the “pooling of receivables”) and the ratio according to which loans (WIBOR?) will be made – the market conditions of each transaction must be maintained.
Figure. 2 Main points of the intragroup pooling schedule (own development)
This diagram shows several important points on the daily timeline.
We assume that the Pooling Leader has the power to manage the participants' accounts (although a scenario with the active participation of companies in transfers cannot be excluded), knows the forecasts of flows and balances on accounts in all the banks serving the companies.
It must make appropriate transfers to accounts with negative balances (according to the above-mentioned key) and is in this process limited by the time limits for settlements conducted by the National Settlement Chamber.
This. one of the major operating differences between pooling by one bank and pooling ‘without bank’. In the first the case may be used for consolidation of all funds which flow to participants' accounts practically until the start of the banking end-of-day procedure.
Also those that are settled during the last session of the Elixir system, i.e. After an hour 17:30. In the case of interbank transfers, i.e. those which occur as part of intragroup pooling, the so-called "cut-off time" of the submission of orders in the SORBNET system, which in the banks varies most frequently from 14:30 to 15:30.
The appropriations to be entered in the participants' accounts after that time will have to be ‘awaited’ in their bank.
Other conditions should also be taken into account when analysing the possibility of introducing such pooling. The technological possibilities for introducing and maintaining the system must be verified.
It is also necessary, among other things, to prepare procedures defining daily processes, recording activities and recording information (the need to define the location/retention resource of data related to the process – including file names, access paths, etc.
and back-up procedures), including records of transactions with related parties.
A large part of the operational obligations in the case of “bank” pooling lie with the bank – this must also be taken into account before deciding on a solution.
FEES AND PROVISIONS
It is worth paying attention to any fees associated with the service. There can be quite a lot of them and good if we can identify and inventory the parameters and events that will be subject to charges. The bank usually collects from participants (individually or from the Leader) remuneration for pooling services. The fee is usually determined individually with the group.
In fact, banks do not make public the details of their offer in the field of pooling services. In printed and digital materials, only brief references are made to encourage those interested in individual contact. Bank fees and commissions also usually do not provide detailed information (or do not contain pooling data at all).
BZ WBK's tariff record is quite common: 4. Cash Pooling actual – activation and provision of service by contract Traces of potential toll levels can be found in the Citi Commercial Bank tariff :
3. Consolidation of the Balance (Cash Pooling) - large enterprise
(a) Arrangement fee for each individual structure
(b) Monthly fee per participant 120 PLN
(c) Monthly fee for reports and interest allocation on each participant 680 PLN
This means that, in addition to an indeterminate one-off starting fee, in the case of 10 Companies in the group must be at monthly cost 8,000 PLN. In the context of the benefits of intra-group financing, this amount may be negligible, but it must be taken into account before the final decision on the choice of solution is taken.
It is worth remembering that for the cash pooling bank itself is a deficit service, as it involves a reduction in interest income. It is one of the so-called Anchor Products that allows the customer to be stopped or acquired. However, it enables more companies from the Group to be acquired and the possibility of operational (transactional) cooperation, which can be profitable as a result of cross-selling.
CONCLUSION
From the above you can see that the implementation of cash pooling involves many decisions and processes. The basis will be the choice of option: banking solution or own, group solution. This choice is influenced by the analysis of technological and operational solutions and, although not the subject of this text, tax and legal.
When deciding on the “bank” option and when discussing with financial institutions, it is worth considering simulating pooling. This will require the preparation of data (e.g. balances on company accounts over the period 1 the month), on the basis of which banks will show us the effects of their solutions.
Detailed analysis will require documentation related to the service. This applies to the main agreement and all accompanying agreements. Furthermore, the provisions of the agreement will be the basis for obtaining tax rulings.
It may be valuable to obtain references from the bank and to be able to consult other groups (bank clients) using a similar service – but this is not a common practice and references should be “optional” in the list of project tasks.
Similarly, we can optionally treat pilots - with accounts of selected companies. Pilotage will give us confirmation of the bank's operational efficiency (functioning of the mechanism, data flow, accounting, reports, level of service, etc.).