Euro cash pooling and shared financial services

Abstract

The shared service centre (SSC) is a concept in which a business organisation consolidates all its administrative functions and in-house services in one place. The SSC promises to save a bulk of money, and provide better services to the company's internal customers. The savings are further strengthened by pooling cash in a central account to offset debit and credit balances. A cash pooling system can optimise the use of excess cash and interest yield, reduce interest expense and costly intra-company transac-tions,and the like. However, the segmental legal and tax regimes and, further,the lagging behind of bank services formulate the periphery of cash pooling in Europe. The benefits of SSC and cash pool depend on the business environment,especially how the changes of the number of centres affect the quality of support, and how the scale influences the costs. The European integration is likely to lead to increasing centralisation of internal supporting function. Though it does not affect the expected value of the cash flow, cash pooling will reduce the volatility of the cash flow and improve the liquidity situa-tion of the pooling company. While the bondholders get the same risk-adjusted return, shareholders will benefit greatly from the cash pooling because of the declined interest expenses, and reduced volatility of cash flow which decreases the amount of debt and lowers the hurdle rate.