What is Cash Pooling?
Cash pooling is a treasury technique where a parent company consolidates the cash balances of its subsidiaries — daily or virtually — to reduce idle cash, minimize external borrowing, and improve overall return on liquidity. The group acts like a single bank for its own units.
How It Works
- Physical pooling: balances are physically swept into a master account each day
- Notional pooling: balances stay in subsidiary accounts but are netted by the bank for interest purposes
- Subsidiaries in surplus effectively lend to subsidiaries in deficit, at an internal rate
- Requires inter-company agreements and transfer-pricing documentation
- Limited or banned in some jurisdictions due to thin-capitalization or currency rules
Saudi Context
In Saudi Arabia, SAMA permits cash pooling between resident entities within the same group when supported by proper inter-company agreements. ZATCA expects arm’s-length interest on the internal balances under the transfer pricing bylaws.
Example
A Saudi holding company runs three operating subsidiaries. Each day, every subsidiary’s positive bank balance sweeps to the parent’s master account; deficits are auto-funded from the master. The group saves SAR 4 million a year in unused-credit-line fees and overdraft interest.