In House Cash - Cash Pooling

[Former Member]

Dear Gurus,

Our client is implementing In-House Cash module to meet their Cash pooling (zero Balancing) requirement. I am new  to this area. Request to please help me to understand the settings in SAP to meet this requirement.

Scenario

· Cash Pooling Arrangement is between Parent entity & Child Entities.

·   Maximum Limit is - pre defined

·  Parent Entity has an Overdraft Facility.

· Each Transaction is treated as a Loan and / or Repayment of Loan between Parent Child Pair.

·  nterest is due on loan outstanding half yearly (30 Sep & 31 Mar). Interest is capitalized net of withholding tax on next calendar day for non – payment of interest due.

·    Lender /borrower remain a lender/borrower and interest is levied accordingly; till the entire outstanding is not settled.

·   At year end Amendment of interest takes place & is applicable for the outstanding loans from the date of disbursement. i.e. True up of loan happens and any change in the interest rate will retrospective effect (from start date) on the outstanding loan amount .

·   All Child accounts are zero balance at End of Day and funds are transferred to Parent as repayment of loan or lending to Parent.

·   Each Co Code is having external Bank accounts and sweep in transactions are reflected both in HO & Subsidiary Bank Statements.

·   Bank statements are uploaded separately for each Co Code (HO & Subsidiary)

Example

C (parent) lends to A (child 1) if there is a shortfall and
charge interest and remains a lender till all outstanding is not repaid by A to C, similarly B (child 2)
lends to C on surplus and charge
interest and remains a lender till all outstanding is not repaid by C to B

Nature      Co Code      Start of day      EOD

Parent      C                     100                240

Child 1      A                     -60                 0.00

Child 2      B                     200                0.00 

My understanding

a.  An IHC center to be created at Parent Co Code (C ) that will act as a virtual Bank and each subsidiary will maintain separate current account in the IHC center.

b. Two additional current accounts

1. Account to represent that FI that imports the bank statement holds in the in-house cash center. 
2. Suspense Account - Payments for which the system was not able to automatically determine a recipient are posted to this account.

       Mapping of the same will be done in “Set Up Account Determination for Incoming Payment” in IMG settings

c. The above combination of three accounts (a + b) needs to be created for each currency in which the cash pooling is happening.

d. IHC center will be created as House Bank in each of the subsidiaries and current account as created before will be the bank account number in the House Bank. The same will be used for internal Bank statement update in subsidiary.

Doubt
1.  Flow of accounting entries in each stage

2. Subsidiaries external Bank Statement will also have zero balancing entries like HO Bank Statement. So how to deal with this part.

3. True up of Loan & post tax interest capitalisation

[Former Member · Accepted solution]

Hi Juerg,

Example of Cash pool

Group Companies A & B has a zero balancing cash pooling
agreement with the Parent Co “C”. In-House Bank resides in Co Code C. Both
Child (A & B) and Parent C holds bank accounts with external bank as well. This
external bank makes daily sweeps to & from the master pool account, as held
by In-House Cash, to subsidiaries House Banks. At the end of day both Parent
& Child will receive bank statements for these external accounts containing
these cash sweep transactions and same will be uploaded in respective books.

Thanks,

Sam

[Former Member · Accepted solution]

Hi,

In IHC, you can do the cash pooling for the accounts held in the IHC center.  Example, if the balance of subsidiary A or B is more than certain amount or all the balance held in that account is transferred to the IHC center account which is in general the head office account by defining account hierarchy.

However, if you want the cash concentration for external banks, then you would have to use the cash and liquidity management where you can use the cash concentration functionality to transfer from one bank account to another.

Regards

Ravi

[Former Member · Accepted solution]

Hi Ravi,

Please help me clarify the doubts regarding the cash pooling that I have mentione before

1.  Flow of accounting entries in each stage (HO & Subsidiary books)

2. Subsidiaries external Bank Statement will also have zero balancing entries like HO Bank Statement. So how to deal with this part. Like external bank statements, with cash pooling transactions, will be uploaded separately in HO & Subsidiary books so how to knock off the entries to clear the balances.

3. True up of Loan & post tax interest capitalisation

Best regards,

Sam

[Former Member · Accepted solution]

Hi Sam

You have two possibilities for zero balancing and this is what Ravi was pointing out.

In the Cash Management you can do a cash pooling meaning that from all you bank accounts you swipe at the end of the day all plus balances to one account and all minus balances will also be cleared in the same manner. At the end of the day you have all your funds at one bank concentratet. All cash swipes will be reconciled with incoming bank statements. This means if Bank A is your bank where you concentrate your cash all the incoming and outgoing funds are reported to you on the statement. You also get statements from Banks B, C, D, etc. with all the swipe movement. This process has nothing to do with In-House Cash.

Instead of having all the funds at Bank A you can swipe the excess cash to your In-House Cash account at the head office. You pay from Bank A to the bank account of your head office e.g. Bank Z. Bank Z will then send a bank statement to the head office which contains the information that the amount X is in favor of you. In the head office the In-House Cash will be credited and the credit is shown on your In-House Cash current account. This current account is reflected in your accounting as a house bank. At the end of the day the In-House Cash center sent you a statement with the new balance and the movement. You then reconcile with this bank statement your In-House Cash house bank account.

You can also do cash pooling in the In-House Cash for one participant. This makes sense if the participant has more than one account per currency. You then can shift all amounts to the leading account. At the end of the day the In-House Cash participants are either plus or minus in this account. These ballances are not swiped because they reflect your asset or liability in the In-House Cash center. These In-House Cash accounts are exactly the same as an external bank account. If you are in debit you will be charged with interest and if you are in credit you will receive interest. This procedures allows to have exact balances as needed and no loan or investment has to be done with cash.

Regards

Juerg

[Former Member]

Hi Sam

The In-House Cash is a virtual bank set up in the head office. The head office is the owner and all affiliates have current accounts in the head office. This means that the affiliates have to set up the In-House Cash account as a bank account. In the head office all the account of the affiliates are subledger accounts. Normally you execute intercompany payments over these accounts meaning you debit affiliate one and credit affiliate two in the In-House Cash subledger. The In-House Cash can also be used to collect centrally money for the affiliate. This means a customer of affiliate one pays to the head office with the information that the money is for affiliate one. The In-House Cash center holder receives then the money at his house bank and credits the account of affiliate one in the IHC. The movement of cash is then confirmed on a bank statemend IDOC type FINSTA. The FINSTA is uploaded in the affiliate one like any MT940. Furthermore you can do payments on behalf. This means the affiliate sends a F110 to the In-House Cash center and they execute an F111 for the external payment. The In-House Cash current account of the affiliate 1 is then debited for the amount and gets again a statement FINSTA.

As you are talking about Cash Pooling I am not sure what you mean. In most cases the affiliate 1 has a bank account at an external bank. If you want to pool the cash the affiliate has to send the money to the house bank of the head office and they will credit the In-House Cash account of the affiliate 1. If affiliate 2 is minus on the In-House cash current account the head office just credits the account and debits interest according to the agreement e.g. LIBOR plus a magin.

I am not sure if this answer is helping you but to me it looks like the process is not really defined.

Regards

Juerg