Treasury liquidity structures

IN ONE LINE

A company with many bank accounts wants its spare cash in one place, working, rather than scattered and idle.

Treasury liquidity structures are the arrangements banks offer to do exactly that.

Analogy: a household with several jars.

Every night you tip the small jars into one big jar so you can see and spend the whole amount — that is cash sweeping, physically moving balances into a central account.

Or you leave the coins where they are but add the jars up on paper to get one combined figure — that is notional pooling, where no money actually moves.

Group treasurers use these to fund payments from one pot, cut overdraft costs, and see all their cash at once.

Which structures are allowed depends on the bank, the countries involved, and the tax and legal rules that apply.

WHAT IT ACTUALLY IS

Two families of pooling exist.

In physical cash pooling, balances are actually moved — swept — from participating accounts into a single header account, leaving the sub-accounts at zero or at a target balance; the movements are real transfers with real value dates, and intercompany loans arise between the entities involved.

The scheduled movement itself is cash sweeping, run daily, on a threshold, or on demand.

In notional cash pooling, nothing moves: the bank calculates interest on the combined balance across the accounts as if they were one, so credit balances offset debit balances without any transfer.

Physical pooling concentrates the cash but creates intercompany positions to track; notional pooling avoids the transfers but depends on the bank's willingness to offset and on rules that permit it.

Many groups combine both across a hierarchy of accounts.

HOW IT WORKS

Reconciliation is where pooling meets its complication: concentrate the cash and you lose the per-payer detail unless you plan for it.

Virtual accounts solve this — a single real account is subdivided into many virtual reference accounts, each with its own identifier, often a virtual IBAN, that a payer quotes.

Money still lands in one real account, but the virtual identifier tells the receiver which customer or subsidiary paid, so incoming payments reconcile automatically.

Operations and treasury teams run sweeps to cut-off deadlines, prove the intercompany loan entries that physical pooling creates, and check that swept balances settled with the correct value dates.

A virtual IBAN can also let a group present local-looking account details in several countries while collecting into one place.

Naming and capability differ widely between banks, so learn your own bank's model first.

THE WORDS

Physical cash pooling

Concentrating balances by actually moving money from subsidiary accounts into one header account, so surpluses and shortfalls net in real cash.

Notional cash pooling

Combining account balances for interest and offset purposes without moving money — the bank nets the positions arithmetically, leaving each account intact.

Cash sweeping

Automatically moving balances between accounts to a target — e.g. emptying accounts to a header or topping them to zero — on a set schedule.

Virtual account

A ledger sub-account under one real bank account, used to route and identify collections or payments so treasury can attribute them without many real accounts.

Virtual IBAN

An IBAN issued as an alias that routes payments to one underlying real account, giving each payer or purpose its own account number for identification.

READ FIRST

• Nostro reconciliation

CONNECTED TO

• CHECKPOINT Market plumbing checkpoint
• EXCEPTION LAB Held, not rejected: a T2 payment queued for liquidity
• EXCEPTION LAB Held in the queue: a CHAPS payment waiting for liquidity

SOURCES

• Payments Signal editorial teaching models — Payments Signal