Netting, simplifying your intercompany cash management

| 16-09-2016 | Jan Meulendijks |

Netting is mainly used by global operating companies with a large number of subsidiaries; the reach of netting can however also include smaller company structures and save a lot of handling and costs.

A company with a number of (foreign) subsidiaries will inevitably face a lot of internal deliveries, invoices, payables, receivables between all these subs (in multiple currencies).

Of course each individual transaction can be handled on it’s own, but this results in a very large number of ledger entries, payments, transaction costs, currency handing.

A netting system in which all intercompany movements are registered (manually or, preferably, automated by your ERP system) sees to it that on the desired netting date (e.g. daily, weekly, monthly….) each sub is informed about the nett amount to pay or receive to/from the central netting account.

Source: Netting – An overview

Today’s generation of ERP/ledger/treasury software will often provide a netting module. I notice however, that in daily practice only the larger multinationals use this solution. The availability of netting solutions has reached the level that also smaller company structures may profit from the netting technique and that it is worth investigating the efforts and consequences it brings to your company.

Jan Meulendijks – Cash management, transaction banking and trade professional

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