Cash pooling is how a group turns many account balances into one usable liquidity position. The first design choice is physical versus notional — they are different products that share a marketing word.
If you only need a definition, see what is cash pooling?. If you are choosing a structure for a multi-entity group, use physical vs notional.
Physical concentration
Cash actually moves. Common labels: zero-balance accounts (ZBA), target balancing, cash concentration. Participant accounts sweep to or from a header account on a schedule or intraday rule.
Sweeps usually create intercompany loans or deposits. That means legal agreements, an interest method, transfer pricing, and interest deductibility analysis. Physical pooling is the right tool when the group needs real cash at a center for investing, debt reduction, or funding a payment factory / in-house bank.
Notional structures
Notional pooling generally leaves legal balances in place and calculates interest on a notional net. The economic goal is interest optimization, usually with bank set-off rights and often cross-guarantees. It does not put cash at the center, and it is not the same product as virtual accounts. In mainland China, classic multi-entity notional is usually not available — see can we do notional pooling in China?.
Domestic versus cross-border
Cross-border pooling is not domestic pooling with a longer participant list. FX controls, withholding on interest, documentation, and bank product availability usually dominate. Country notes such as China belong in the design early — use cross-border cash pooling as the dedicated design page, not a footnote.
How large MNCs usually run it
Most groups run hybrids: domestic physical or notional pools in major countries, plus regional concentration into a treasury center or IHB. Many also run intercompany netting on a cycle before sweeps so gross IC invoices do not inflate payment volume. Freed operating cash from working capital management only helps once it can sit behind release — typically a funded payment factory. Liquidity management is the umbrella; pooling is one concentration tool inside it.
Settle early
- Do you need cash concentrated, or only interest offset?
- Same currency only, or multicurrency?
- Will an in-house bank sit above the pool?
- Which countries force a local-only first step (for example China and China notional limits)?
- How does the header fund the payment factory once cash is concentrated?