One of the big—and costly—hassles for treasurers of global companies that operate in many different currencies has always been the need to hedge payables and receivables to minimize the risk of a significant shift in exchange rates.
For example, if a U.S.-based company had a subsidiary in Italy that expected to have to pay in euros in six months for an expansion, the parent company would enter into a transaction to hedge the anticipated payable amount out to the payment date at a set exchange rate. That meant paying a bank or dealer for a forward euro contract and tying up the money for six months.
“There is no need for sweeping accounts with a notional pool,” Jahnel explains. “All we have to do is manage the total balance of the accounts.”
“We manage the individual subsidiaries’ accounts in terms of setting limits on their overdrafts,” he adds. “Obviously if they’re draining cash beyond what is planned, we would have to look into what is happening.” Henry Schein uses cash balances at some subsidiaries in the pool, notionally, to balance against FX liabilities of other units, and it can also use FX accounts receivable notionally to offset FX accounts payable.