What is a Bank Overlay Structure?

Companies operating on an international scale frequently have trouble reconciling the need for efficient cash concentration operations with the use of local banking partners with whom they may have long-standing relationships and valuable business contacts. The solution is the bank overlay structure, of which there are two layers.

The lower layer is comprised of all in-country banks that are used for local cash transaction requirements. The higher layer is a group of networked regional banks, or even a single global bank, that maintains a separate bank account for each country or legal entity of the corporate structure.

Cash balances in the lower layer of banks are swept into the corresponding accounts in the higher layer of banks on a daily basis (where possible, subject to cash flow restrictions). These sweeps are accomplished either with manual transfers, SWIFT messages from the networked banks to the local banks, or with standing authorizations to the local banks.

Advantages of the Bank Overlay Structure

There are several advantages to using a bank overlay structure, which are as follows:

Centralized cash management. A bank overlay structure consolidates multiple bank accounts across different regions or entities into a single, centralized view. This allows a company to manage cash more efficiently by concentrating balances and reducing idle funds. With better visibility, treasury teams can make more informed liquidity decisions and optimize working capital.
Streamlined intercompany transactions. By routing intercompany payments through a central overlay account, businesses can reduce the volume of physical cash movements between subsidiaries. This minimizes transaction costs, reduces reconciliation efforts, and simplifies accounting entries. It also ensures consistency and standardization across the organization’s financial operations.
Improved control and compliance. The overlay structure enhances control over cash flows by setting clear authorization limits and transaction rules at a centralized level. This setup helps ensure compliance with internal policies and regulatory requirements across jurisdictions. With better audit trails and monitoring, the risk of fraud or financial mismanagement is significantly reduced.