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Liquidity Management
For Holding companies and companies with multiple subsidiary accounts, SABB has developed two methods of optimising liquidity.
Liquidity Management Methods
Pooling
This method allows a company to maximise its liquidity by notionally combining account balances into one pool, without actually moving any funds. This means that debit balances can be offset by credit balances, with interest calculated on the net overall balance
Cash concentration
This method allows a company to physically sweep account surpluses into a central parent account. Any account deficits are then funded by the parent account, eliminating subsidiary overdrafts and reducing interest fees.
Key Features & Benefits
Pooling:
- Reduces your balance sheet and improves financial ratios
- Cuts credit facilities by establishing a credit line at master account level
- Interest rates improve since master accounts usually attract better rates than subsidiary accounts operating individually
- You can reward cash-rich subsidiaries and penalise those in overdraft
Cash concentration:
- Manages group liquidity centrally
- Cuts borrowing costs
- Makes administration easier
- Balance concentration means better interest rates
- Several sweep options allow maximum flexibility
- Subsidiary accounts can maintain zero or pegged balances
- Provides a platform for collections and disbursements
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