The overall financial result improves because the margin between the debit interest and the credit interest is cancelled out on the cleared balances.
The cost of pooling the balances of all the sub-accounts is usually lower than the total of the costs of all the separate, single transfers.
Offsetting debit balances reduces the level of indebtedness recorded in the group’s balance sheet.
Management is simplified:
- clearer net balance;
- computerisation of numerous individual transfers, which saves time;
- computerised reporting provides details of each individual target-balancing transfer.
Target balancing does, however, imply a cost for managing the cash pooling-process:
- booking all intra-company entries;
- calculating and booking the interest on intracompany loans generated by target balancing.
Finally, target balancing reduces the autonomy of sub-account management, which is not the case with notional pooling.