Notional cash pooling is a form of cash centralisation in which the bank offsets the balances of several group accounts for interest calculation purposes, without any funds actually moving. Each entity keeps its own balance on its own account; only the interest is computed on the net position of the whole set.
The mechanism is straightforward. Subsidiary A holds 3 million euros, subsidiary B is 2 million overdrawn. No transfer occurs, but the bank charges interest on a net debit position of nothing rather than paying credit interest on 3 million and charging debit interest on 2 million at a much higher rate. The saving is the spread between the two rates.
What it preserves is autonomy, and that is the whole point. Because no cash moves, no intragroup receivable or payable is created. Each entity keeps full control of its balance, which matters where minority shareholders would object to their cash being swept upward, or where local regulation restricts outbound transfers. Compared to zero balancing, the accounting is far lighter.
The counterparts are real. Banks require cross-guarantees between the participating entities, so each one guarantees the others' positions. Several jurisdictions restrict or prohibit cross-border notional pooling, and regulatory capital rules have made the product more expensive for banks, which has narrowed its availability. It is also less effective than physical pooling when the group carries structurally large deficits.
Whichever form the group uses, the treasury position it produces is only reliable if entity balances are themselves reliable. Consolidating data from multiple ERPs and cash position consolidation are what turn a set of bank balances into a group view.
