Notional pooling calculates interest on a combined notional net balance while participant balances usually stay in their accounts. Use it when physical sweeps are unnecessary, operationally heavy, or legally awkward — and only where the bank and jurisdiction actually offer it.
It sits beside physical cash pooling, not above it. Choice tree: physical vs notional. Broader stack: liquidity management.
Mechanics
Participants keep their own balances. The bank computes interest as if balances were netted. Documentation often includes set-off rights and cross-guarantees among entities. Those guarantees are a credit and corporate-approval problem, not a footnote.
Single-currency, same-bank, same-jurisdiction notionals are the common case. Multicurrency notional is a different, scarcer product.
What it is not
- Not virtual accounts / virtual IBAN layers (those solve collection routing and reconciliation)
- Not automatic cash at the center for a payment factory — that still needs physical concentration, an in-house bank funding model, or both
- Not “tax free” — interest allocation or imputed interest still needs transfer-pricing documentation
Availability
Local limits on multi-entity set-off, plus bank balance-sheet constraints, have reduced pure notional menus in several markets. In China, do not assume EU/US-style notional is available — see can we do notional pooling in China?.
Before you commit
- Can every participant give the required cross-guarantee / set-off package?
- Same currency only, or is multicurrency a hard requirement?
- Is the real need interest optimization, or cash concentration for payments and investing?