Cash Pooling: The Nordic Advantage

One of the most basic tasks of a group treasury is to ensure
that the group’s liquidity is visible, readily available and earning a decent
return. To that end, cash pooling is a common practice. Generally, two methods
are used:

  • Zero-balancing (ZB): Funds are physically moved to a master
  • Notional: The balance of the participating accounts are
    notionally aggregated

In the Nordic region there is a variant, or
hybrid, of these two methods developed by the local banking community. The
method is called ‘Nordic cash pooling’, ‘single account pooling’, ‘group
account’ (koncernkonto), or ‘central account’ (centralkonto).

This is
a proven method – in both technical and legal terms – and easily the most used
cash pooling technique in the Nordic region. The method has certain special
features and for treasurers who are in the process of establishing a regional
treasury operation or payment factory in the region, it is worth investigating
this option.


The method is based on a model with
a real top/master account and virtual transaction accounts. However, from the
user’s point of view, the sub/transaction accounts are very real. The ‘virtual’
property is primarily from a legal point of view; in practice, the accounts act
as and can be used as any ordinary transaction account. Legally, the top account
is the only account on the bank’s books and it holds the real, interest-earning
balance. Any credit facility is also linked to the top account.

transactions on the sub-accounts are mirrored to the top account. The balances
on the sub-accounts are purely intra-group claims/liabilities between the
sub-account holder (subsidiary) and the cash pool/master account owner (group

Usually, the cash pool owner can set the interest
conditions to be applied to the sub-accounts, as well as internal limits. It is
also possible to define levels in the account structure that can be used to
reflect the organisational structure, such as summary levels for divisions, as
shown in the diagram below.

Handelsbanken Nordic pooling

This means that from the subsidiaries’
point of view, the model acts as a notional pool. They have their own bank
accounts that they manage and with balances that are not swept away
automatically. On the other hand, from treasury’s perspective, the model behaves
as a zero-balancing (ZB) cash pool, with all actual liquidity reflected on the
top account. The balance netting is done without any physical transfers being
needed since, legally, all transactions are performed on the master account.
Treasury has a real-time view of the net cash position and can easily access it
from its own transaction account in the structure (without affecting the
subsidiaries’ balances).

Thus, the functionality can be perceived as
a hybrid of the ZB and notional pooling methods, providing the best features of
both models.

The balances on the sub-accounts are often adjusted as
part of an annual group capitalisation review, e.g. converted to internal term
loans/deposits. Regular sweeping arrangements between accounts within the
structure can also be set up, if there is a need for them.

Furthermore the more advanced banks in the region, including Handelsbanken,
are able to connect the account structures across currencies and borders, thus
scaling up the concept into a fully fledged cross-border, multi-currency


In light of the above
it is easy to understand why the adoption of concepts such as in-house cash
(IHC) among Nordic corporates has been somewhat slow. The need for them has
simply not been as great as in environments with other cash pooling methods. The
‘Nordic cash pool’ is in effect an IHC solution – including a single (real)
external bank account and the management of intra-group balances – being
outsourced to the bank. The bank can calculate and book, if requested, the
(internal) interest as on any bank account. It also produces statements and
file-based reporting for the sub-accounts. The banks have the experience and
systems to support this functionality in a cost-efficient way.

achieve the same functionality with in-house systems, advanced structures are
needed in the enterprise resource planning (ERP) systems. These solutions are
often complex from both a technical and legal perspective. The set-up and
maintenance of the solutions can be quite costly.

The Nordic pooling
method is compatible with the payment factory concept and can reduce the need
for complex payment/collection-on-behalf-of (POBO/COBO) procedures. Since the
payments are made from/to the subsidiary’s own (virtual) bank account,
reconciliation is facilitated. The benefits have been generally recognised and
have made even non-Nordic banks introduce ‘virtual’ sub-accounts, thus mimicking
the Nordic set-up.

That said, the solution is particularly suitable
when a group operates in a decentralised manner; for example when the local
management is also responsible for its own liquidity and working capital
management, and/or when the payment processing is performed locally.


The objectives of new account structures and cash
pooling models are usually to facilitate cash management, increase control and
reduce costs. Our recommendation is that before complex internal solutions are
established, the functionality of the ‘Nordic cash pool’ model should be
evaluated. This can often be the most cost-efficient alternative.


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