Comment on the following: Efficient cash pooling structures are keys to efficient and effective liquidity management.

Efficient cash pooling structures are keys to efficient and effective liquidity management. A cash pool is a structure which allows the balances on different bank accounts of a company or a group of companies to be treated as one single balance. It allows a company to combine the balances, both positive and negative, of all the accounts that are in the pool. Cash pooling provides a group with subsidiaries with a number of potential benefits like control over cash flows, funding benefits, investment opportunities, minimization of interest charge, reduction in payment costs etc. Every investment has a cost to the company even the shares tapped from the share holders. Deposits are tapped in exchange of payment of interest. Borrowing has cost of payment of interest to creditors. So every fund has dividend/interest payment risks for the banks/company. So, if funds tapped are not properly utilized, the banks/company may suffer loss. Idle cash balance in hand has no yield. On the other hand, if sufficient cash balance is not maintained, then the probability of technical insolvency may arise.