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Best Cash Management Solution Highly Commended: ZF Friedrichshafen AG, APAC

Clara Wang, Bank of America Merrill Lynch collects the award on behalf of ZF Friedrichshafen AG, APAC

Photo of Clara Wang, Bank of America Merrill Lynch collects the award on behalf of ZF Friedrichshafen AG, APAC.

ZF Group has multiple legal entities but was struggling with a less-than-efficient cash management structure around its USD holdings. It came up with a sweeping and pooling structure that makes best use of the company’s USD balances across China while also allowing a two-way sweep of cash between the company’s header account in the Shanghai Free Trade Zone and other accounts around the world.


Andy Chen

APAC Treasurer

Shanghai, China

German car parts maker ZF Friedrichshafen AG, also known as ZF Group, is a global automotive supply powerhouse with combined annual sales of more than US$40bn. It has 230 production locations in 40 countries with approximately 138,000 employees.

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ZF Group: sweeping and pooling as a more efficient way of managing its USD balances

The challenge

ZF Group has multiple legal entities but was struggling with a less-than-efficient cash management structure around its USD holdings. While some entities were short on USD and having to purchase them through FX transactions in amounts as large as US$20m, others had a surplus to sell and convert to RMB. Clearly, what was needed was a more efficient way of managing USD balances within the group.

The solution

ZF’s Asia treasury team turned to Bank of America Merrill Lynch (BofAML) for help in coming up with a solution.

The result was a sweeping and pooling structure that makes best use of the company’s USD balances across China while also allowing a two-way sweep of cash between the company’s header account in the Shanghai Free Trade Zone and other accounts around the world. The pool includes 11 entities in a structure that allows ZF to include its China flows in the global netting system. All inter-company transactions can now be consolidated in one monthly inter-company netting process.

While the solution is elegant and simple to operate, implementation presented several challenges for ZF’s small three-person China treasury team. First, the Chinese regulation of foreign currency transactions is stringent and required careful handling by the company’s treasury. The ZF team worked closely with BofAML to negotiate with the State Administration of Foreign Exchange (SAFE) to obtain the required approval for the proposed USD cross-border sweep. This is a significant achievement for ZF in China as it was part of the pioneer batch of corporates, approved by SAFE to conduct such a USD cross border sweep structure.

At the same time, regional tax authorities also needed to approve the domestic USD pooling component of the new structure. Again, the treasury team rose to the challenge, travelling for face-to-face meetings with tax offices in several regional capitals to get consent for their proposed arrangements.

While this was happening, the treasury team also needed to review all cross-border pooling agreements with legal colleagues in the US and with BofAML – a three-month process because of the many entities involved, local and global approval requirements.

Finally, new bank accounts had to be opened both in China and overseas before the new structure could go live. This was achieved, and today the solution is already generating considerable savings for the group. The cash pool solution allows ZF to concentrate daily operations into BofAML, streamlining and standardising the payment process across China, enabling them to comply with specific regulatory compliance requirements for different cities. BofAML’s cash pool solution allowed standardisation of FCY payment process improving the payment efficiency for ZF’s SSC in China.

Best practice and innovation

The ZF cash management solution shows how a relatively small treasury team can achieve a great deal through a proactive attitude. The team’s ‘hands-on’ approach to negotiating with both the Chinese regulator and the regional tax authorities helped ensure the success of this project while maintaining full compliance with national and regional regulations.

Key benefits

The success of the ZF pooling and netting project can be seen in the results it generates in terms of cash concentration and the benefits it brings. For ZF, these include:

  • A reduced workload for treasury as processes are simplified.

  • Fewer errors in transaction processing.

  • Savings in FX costs as fewer transactions are required.

  • Reduced bank charges, again because of the reduction in inter-company transactions.

  • Improve payment efficiency by concentrated FCY payment business to a single banking provider.

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