Global Cash Pooling : International Liquidity Management by a Swedish Multinational Enterprise

International cash management is a complex set of activites, encompassing the management of short-term cash balances and deficists and related foreign exchange and iterrest exposure, on an international level. Its objectives is interest optimisation or maximising interest earnings and minimising interest expense in a tac efficient manner. In the simplest terms, this means finding efficient ways to use internal funds to support operating needs copmany wide, with the company treasury as centre. Today, treasures are expected to take use of every dollar, SEK or sterling available throughout the company, at the same time as they should cut foreign exchange transactions and swap transactions. Furher, the treasurer is expected to handle this without increasing the risk for the company, and with a more lean and less resource demanding staff. The new demand on the treasurer has led to an increasing innovativeness with systems creatid such as netting, cash concentration and cash pooling. Especially cash pooling has recently been further developed, assisted by technological innovations and growth. New and more advanced cross-border multi-currency cash pooling systems have been developed, systems which allow companies with operating units in many countries to use excess cash in concentration accounts, automatically offset cross-border debit and credit balances regardless of currency and to better manage the resulting cash position. But there is no single strategy applicable to all companies. There are a number of company specific factors that should be assessed; the nature of the business, its specific objectives of the system, the location and legal status of the subsidiaries, as well as the currencies in use. For Perstorp, with subsidiaries in 16 countries and with 90 percent of sales outside Sweden, an effective liquidity management demanded a system being able to combine national preferences with the advantages of a centralised treasury. The choice fell upon global cash pooling system. Ti is based on a structure of accounts nationally, with a connecting communication system provided by the overlay bank. The sysem facilitates the treasury to consolidate funds internationally, and transferring funds between subsisiaries where they were most efficient. The purpose of this study has therefor been to give an descriptive picture of the cash pooling system as used by Perstorp and accommodated to meet their requirements. It has been done through a litterature study and personal interviews with the President of Perstorp Treasury AB, Gunnar Modalen. In order to give a background to the choices made by Perstorp Treasury when establishing the system, as well as to give a understanding to the options available to them, the theoretical background is divided into two seperate but interdependent parts. In chapter three, the background and factors influencing the development of international cash management is explained, and in the following chapter the various cash pooling systems regarding structure of accounts and company os outlined. Finally, the primary objective of the thesis is dealt with in chapter five, i.e to give a descriptive illustration of the liquidity management solution made by a Swedish multinational enterprise. The furture of cash pooling lies in its wider usefulness. It is a flexible system constrained in the legal and technological environment where it operates. For Perstorp, with 55 percent of sales in the European Union, the implementation of EMU in 1999 will decrease the ligislative hurdles and furher simplify the structure of accounts, as well as simplifying the handling of currency risk. Also the technological environment is steadily developing, making it possible to more cheaply and more eddiciently transfer funds internationally. With today´s system, Perstorp´s cash pooling system is restricted to have real-time access to those markets where the overlay bank is situated. In the future, with bank working as “virtual banks” spanning over national borders, the cash pooling system will have even greater possibilities of incorporating more markets and hence consolidate more of the company group´s funds.