A treasury manager is key to the growth and financial success of a business. It is their responsibility to build a banking structure that enables the business to operate with a minimum of idle cash, to aggregate its liquid funds around the globe, to take the opportunity to automate treasury functions, to secure payments processes and systems and to stay focused on fundamental strategic questions.
In order to aggregate the use of cash, many companies start by implementing physical cash pooling between existing bank accounts. This means that each subsidiary collects and disburses cash through local bank accounts. At the close of each business day, the net funds’ positions are physically transferred to the main parent company account. From there, the net position is either invested, if there is excess cash, or funded through a centralised credit facility.
The movements of money between legal entities of a company are generally treated as intercompany loans. Treasury conventions signed between participants define inter-companies’ relationship frameworks and ensure the legal entities are indeed at arm’s length. The conventions also include interest calculations and FX risk management. The conventions also require accounting process considerations because daily transactions occur between entities.
In addition, it is vital that legal and tax teams validate the parent company and its legal-entity structures due to tax implications.