1. Using Payables Invoice to Pay
  2. Notional and Physical Cash Pools

Notional and Physical Cash Pools

Cash Pooling is a cash management technique used by organizations to optimize funds by consolidating bank balances across multiple bank accounts. It's usually performed on a daily basis. Cash pooling allows companies to combine their bank balances in various accounts into one account.

This allows the maintenance of notional and physical cash pools using REST services. For more information on REST services, refer to the REST API for Oracle Financials Cloud guide.

Notional Cash Pools

Notional pooling does not involve any fund movement. The closing balance for a day is calculated as a sum of the individual balances of the bank accounts included in the pool.

  • A Notional Cash Pool has a single concentration account (master) linked to multiple sub accounts.

  • The closing balance for a day is calculated as a sum of the individual balances of the bank accounts included in the pool.

Physical Cash Pools

This is a cash leveling technique and involves adjusting the bank balances for all subaccounts either to zero (Zero Balance Accounting) or a predefined target (Target Balancing). The consolidated excess or shortage of funds is managed through a single concentration account. This is achieved by conducting a series of internal transfers between the subaccounts and the master concentration accounts. This can also be achieved through a series of sweeps generated by the banks.

  • In physical cash pools, funds from the subaccounts are physically moved to a concentration account.

  • Physical cash pools involve adjusting all subaccount balances either to zero or a predefined target balance.

  • The leveling is usually classified as:

    1. Zero Balancing

    2. Target Balancing

Nested Cash Pools

Nested Cash Pools are where they can be a member of another cash pool. You can define nested cash pools to review the reporting of the cash pool balances and cash positioning by providing further reporting level consolidation.

For example, there are 2 cash pools: Cash Pool1 and Cash Pool2. You can add Cash Pool1 as Member of Cash Pool2. In this case, if you review the cash balances for Cash Pool2, they show the balances of the concentration account, sub accounts, and the consolidated balance of Cash Pool1. The same applies to cash position reporting. You can set up to 3 levels of nesting in the cash pools.

You need the following information to create a Cash Pool:

  • Active Bank Accounts with user access.

  • Cash pool type (physical or notional).

  • Concentration type (one account or two account).

  • Sweep settlement requirement (true or false).

  • Balancing type (zero or target balancing).

  • Target balances for the cash pool member bank accounts (Setup and Maintenance > Manage Bank Accounts).

  • Create the cash pools using REST services.

  • Submit the Cash Position Data Deletion process to create the cash pool dimension in the Essbase cube.

Concentration Account Types in Physical Cash Pools

In case of a Physical Cash Pools, it's possible to create One Account or Two Account Concentration Type cash pools. In Two account concentration type, there are two concentration accounts.

  1. Funding a concentration account: The deficit in the subsidiary account is funded from this funding concentration account.

  2. Investment concentration account: The surplus funds in the subsidiary accounts are transferred to the investment concentration account.

Sweep Settlement Required Indicator in Cash Pool

The sweep settlement required indicator for a physical cash pool specifies whether the deficit or excess in subsidiary accounts is handled through self-initiated sweeps (cash leveling proposals) or bank initiated sweeps. Depending on this option, the application either generates a cash leveling proposal (when the option is Y) or the Bank Statement Transaction Creation process allows generating sweep transactions for the sweeps generated by bank.

Reviewing Cash Positioning and Cash Balances by Cash Pool

A new dimension for the Cash Pool is added in the cash positioning cube. If the cash pools are set up, you can review the cash positioning and cash balances for the cash pool.

Cash Leveling Proposal

When the cash positioning is viewed for a specific cash pool, the cash leveling feature allows initiating bank transfers between the concentration account and the subsidiary accounts. The proposal is shown based on the Target balance, Minimum and Maximum Payment setup in the Manage Bank Accounts, and the Actual Balance and the Variance.

  • If the physical cash pools have one concentration account, and this account has excess funds, the cash leveling proposal will be to transfer funds from the concentration account to the subsidiary accounts.

  • If the concentration account is in deficit and the subsidiary accounts are in surplus, the cash leveling proposal will be to transfer funds from the subsidiary accounts to the concentration account.

  • If there are two concentration accounts, the investment concentration account will get excess funds from the subsidiary accounts, and the funding concentration account transfers funds to the subsidiary accounts in deficit.

  • If the concentration account does not have a sufficient balance, no bank transfer will be initiated.

Sweep Transactions Generation

When the sweep settlement required indicator for the cash pool is set to no, the bank sweeps funds and reports them in the bank statements. The sweep transaction generation is handled using the Bank Statement Transaction Creation process. A new transaction type, Sweep is added to the bank statement transaction creation rules. This value is used to generate the sweep transaction and reconcile with the statement line with the external transaction generated for the bank initiated sweeps.

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