What is cash pooling? How it works, key types, and examples

Cash pooling is a treasury strategy that brings scattered balances together to create a unified view of your company’s cash position. It simplifies the management of multiple bank accounts across regions or business units by centralizing liquidity.

For companies with many subsidiaries or accounts, this strategy helps reduce idle funds, minimize borrowing costs, and improve overall financial efficiency.

We cover what cash pooling is, the two main types of cash pooling, how U.S. regulations affect its use, and some real-world examples to help you decide whether it’s right for your business.

What is cash pooling?

Cash pooling is a treasury strategy that combines the cash balances of multiple bank accounts into one centralized structure. Instead of having some accounts with extra cash and others running a deficit, cash pooling lets your business treat all its money as a single shared resource.

The main purpose of cash pooling is to make better use of your business's existing cash. By consolidating balances, your company can optimize liquidity, ensure cash is always available where it’s needed, and cut down on external borrowing.

Cash pooling is especially popular among large companies, multinational corporations, and organizations with multiple subsidiaries or accounts spread across different regions. It gives treasury teams better control and flexibility when managing your company’s overall cash position.

How does cash pooling work?

Cash pooling centralizes a company's cash resources by combining balances from multiple accounts across different subsidiaries, divisions, or regions. A master account, usually managed by the parent company’s treasury team, acts as the hub, while individual subsidiary accounts contribute surpluses or draw funds as needed.

The primary goal is greater financial efficiency through economies of scale. At the end of each day, you sweep surplus funds from subsidiary accounts into the master account and cover deficits in other accounts, effectively netting balances across the group. This improves overall liquidity, optimizes interest earnings, and reduces transaction costs.

What are the types of cash pooling?

There are two main types of cash pooling: notional and physical. Companies typically choose an approach based on their organizational structure, geographic footprint, and the regulatory environment they operate in.

Notional cash pool

Notional cash pooling groups the balances of different bank accounts without actually moving any money. The bank adds up all the account balances and calculates interest as if they were in one big account, but each account still keeps its own money and control.

One of the biggest advantages of notional pooling is how easy it is to set up, with no disruption to daily operations. Since no money is moved, it saves on transaction fees and works well for companies that operate in different countries or want to keep their accounts separate.

However, this method can raise legal and regulatory concerns in some regions because the funds are treated as shared, even though they aren’t physically combined. Banks typically require special legal agreements, such as cross-guarantees, in case an account goes into debt.

Physical cash pool

Physical cash pooling, also called zero-balancing or target-balancing, actually moves money between accounts. You regularly sweep extra cash from different company accounts into a central account, either reducing other accounts to zero or leaving a preset minimum balance.

The primary benefit of physical pooling is the complete centralization of cash management. Because the money is physically moved, it creates a clear audit trail that helps simplify regulatory compliance. However, it also creates intercompany loans between parts of the company, which need to be tracked carefully and may have tax implications.

Zero balance account (ZBA) approach

This setup often uses zero balance accounts (ZBAs), where you automatically sweep each subsidiary account to zero at the end of each day, moving all surplus funds to the master account. You use ZBAs when you want full control and visibility over subsidiary-level activity while still centralizing excess cash for efficiency.

Real-world examples of cash pooling

Cash pooling is a popular tool for companies across a variety of industries. Here are a few examples of how to use it in practice:

Multinational retailer managing global liquidity

A global retail chain with business subsidiaries in Europe, Asia, and North America uses notional cash pooling to virtually combine balances across different currencies and regions. This gives the treasury team a real-time view of cash around the world and allows them to fund operations in high-demand markets without taking on unnecessary debt.

Mid-market manufacturer cutting borrowing costs

A mid-sized manufacturing company with several U.S. divisions uses physical cash pooling to sweep surplus funds into a central master account. By using internal cash to cover shortfalls instead of relying on expensive credit lines, the company lowers interest expenses and improves its working capital.

Is cash pooling allowed in the US?

Cash pooling is partially allowed in the U.S., but with important restrictions.

Notional pooling, where funds are combined virtually without moving money, is generally not permitted under U.S. banking regulations such as Federal Reserve Regulation W and FDIC insurance limits.

Meanwhile, physical pooling, where funds are actually moved between accounts, is more common, but it must comply with strict intercompany lending, tax, and regulatory rules.

Unlike in many other countries where notional pooling is widely accepted, U.S. regulations make it more challenging. To work around these limits, many multinational companies use modified treasury structures, such as in-house banking or interest optimization programs, that achieve similar benefits while staying compliant.

What are the pros and cons of cash pooling?

The benefits of cash pooling are clear, but there are also some potential drawbacks to consider:

Pros of cash pooling

• Improves liquidity management: Centralizing cash allows companies to offset deficits and surpluses across accounts, reducing idle balances
• Lowers borrowing costs: By using internal funds more efficiently, companies can reduce reliance on external financing
• Optimizes interest rates: Pooled cash can earn higher interest or reduce interest on overdrafts
• Offers greater visibility and control: Treasury teams gain a clearer, real-time view of the company’s overall cash position

Cons of cash pooling

• Regulatory and tax complexity: Especially with physical pooling, intercompany loans can trigger compliance, transfer pricing, and withholding tax issues
• Legal risks: Notional pooling may raise concerns about the commingling of funds and require cross-guarantees
• Operational challenges: Implementing and maintaining pooling structures requires strong systems, accurate forecasting, and coordination across entities
• Restrictions in some regions: Certain countries, including the U.S., have limitations or regulations that restrict the use of notional pooling

Implementation considerations and compliance

Before setting up a cash pooling system, it’s important to think through the operational, tax, and regulatory implications. A well-structured pool can deliver major benefits, but only if you design it to meet compliance requirements and avoid unintended risks.

Tax and transfer pricing

One of the biggest considerations in cash pooling is how you treat intercompany loans for tax purposes. When funds move between subsidiaries and the parent company, they’re often considered loans that can trigger tax obligations in certain jurisdictions.

For compliance purposes, make sure transfer pricing documentation shows that the terms of these internal transactions are fair and at arm’s length. Companies without this documentation risk penalties, double taxation, or even disputes with tax authorities.

Basel III implications

Another factor to consider is how Basel III regulations impact your banking partners. These international rules, designed to strengthen banks’ capital and liquidity positions, make notional pooling less appealing to banks because it raises their capital requirements. Some banks have scaled back or adjusted the way they offer cash pooling services, especially notional pools.

Regulatory constraints in the US

Cash pooling in the U.S. comes with specific regulatory challenges. For example, Federal Reserve Regulation W limits transactions between related entities to protect banks from excessive risk.

That’s why notional pooling is generally not allowed in the U.S., and why physical pooling needs to be carefully structured to meet intercompany lending rules, tax laws, and reporting requirements.

Earn on your operating cash with Ramp Treasury

You don’t need a full cash pooling process to make the most of your money. Ramp Treasury¹ makes it easy to put your cash to work, improve your cash flow, and keep your business moving.

• Maximize yield without sacrificing liquidity: Earn 2.5%² APY on your operating cash, or up to 4.31%³ APY in an investment account, while keeping your funds accessible when you need them
• Improve cash flow with smarter payments: Free, unlimited same-day ACH transfers and wires let you pay bills exactly when they’re due, giving you more working capital without late fees or strained vendor relationships
• Keep your funds secure, simple, and scalable: Enjoy FDIC insurance on your deposits (up to tens of millions) through Ramp’s Business Account, with no fees, minimums, or transfer caps to worry about
• Automate manual work: Get proactive alerts when funds run low or when extra cash is available to invest, so you can stay on top of your cash position with ease

Learn more with our on-demand Ramp Treasury webinar.

‍_{1) Ramp Business Corporation is a financial technology company and is not a bank. All bank services provided by First Internet Bank of Indiana, Member FDIC.}

_{2) Get up to 2.5% in the form of annual cash rewards on eligible funds in your Ramp Business Account. Cash rewards are paid by Ramp Business Corporation and not by First Internet Bank of Indiana, Member FDIC. Cash rewards are subject to change. See the Business Account Addendum for more information.}

_{‍3) Customers with a Ramp Business Account can use the ICS service provided by IntraFi Network LLC. Ramp is a financial technology company, not an FDIC-insured depository institution. Banking services are provided by First Internet Bank (FIB), member FDIC. Subject to the terms of the applicable ICS Deposit Placement Agreement, FIB will place deposits at FDIC-insured institutions through IntraFi’s ICS service. A list identifying IntraFi network banks appears at https://www.intrafi.com/network-banks. Certain conditions must be satisfied for “pass-through” FDIC deposit insurance coverage to apply. To meet the conditions for pass-through FDIC deposit insurance, deposit accounts at FDIC-insured banks in IntraFi’s network that hold deposits placed using an IntraFi service are titled, and deposit account records are maintained, in accordance with FDIC regulations for pass-through coverage. Deposits are insured by the FDIC up to the maximum allowed by law; deposit insurance only covers deposits in the Ramp Business Deposit Account in the event of the failure of the FDIC-insured bank.}