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The Core Benefits of Netting For Corporates
| 29-8-2019 | treasuryXL | BELLIN
Simplify intercompany commerce, minimize fees and elevate visibility
Understanding the core benefits of netting
Multinational corporations are familiar with the downsides when involved with intercompany commerce. Growing transaction fees, currency exchange risk, and lack of transparency are common facets that make it difficult for such organizations. Corporations can implement netting to mitigate those downsides and free up valuable time for treasury and accounting departments. This article will shed light on the benefits of netting and why your company needs to consider implementing it.
A brief definition of netting
Netting or “Intercompany Netting” is the process of reconciling and netting intercompany invoices between two parties, resulting in a final payment and netted cashflow. In regard to financial markets, the purpose is essentially to minimize transactions and distinguish remuneration in multiparty agreements. Netting is suitable for various situations, participants, and cycle types. For more information, check out our in-depth guide to netting here.
Bilateral Netting: Two companies reconcile invoices they may owe to each other and one company agrees to pay the other one sum.
Multilateral Netting: Three or more companies netting invoices together and a netting center is used.
Further Reading: Netting: An Immersive Guide to Global Reconciliation
Macro benefits of netting
Multinational companies often perform transactions with their own subsidiaries or with non-group companies. Because of this, companies must keep currency exchange rates in mind. Original invoices are often sent in the originating currency, which raises the need for either an external exchange service, a bank, or a netting center. With netting, the foreign exchange risk is centralized to the netting center.
It will not only keep existing invoicing procedures intact but avoid the loss of money involved with inflated currency exchange rates when using external exchanges. As mentioned, the FX risk is transferred from individual subsidiaries to the parent company, which is usually more equipped to manage it.
Cash-in-transit is a thorn in just about everyone’s side. Stagnant approval and processing times can create a chain reaction of risk as that cash is unable to be used. Whether it is bilateral or multilateral netting, keeping invoices to a minimum reduces the amount of money that is stuck in the limbo phase of approvals and processing times.
Treasurers are able to operate at a high level when they are afforded visibility of cash flows. When subsidiaries make bulk payments, lack of liquidity or financing issues can arise and if company-wide visibility is lacking, it becomes difficult for a treasury department to act accordingly. Bulk payments backload and are concentrated in a short amount of time, cash flow is stretched thin among many of the subsidiaries. A netting system will provide daily reports and monitoring tools that provide cash flow visibility throughout the group.
Maximize operational efficiency
Naturally, one of the more prominent benefits of netting occurs on a daily basis. Treasury departments will see a drastic reduction in time spent on transactions and managing foreign exchange risk. From an operational point of view, a netting process simply saves treasurers time and establishes a company-wide process for disputes.
An example of this is with BELLIN clients, who save an average of 2 days of work per month per affiliated company. For an organization of 30 affiliated companies, that’s 60 days per month or 720 days a year. Realized savings typically range from $250,000 to +$1,000,000 on an annual basis.
Manage Disputes
When implementing a netting system, the treasury department is tasked with establishing a protocol for managing disputes. When subsidiaries fail to submit payables, a hitch in the payment process is born. What this causes is the inability for the payee to continue with their daily operation as they wait for receivables. Administrators can establish automated escalation protocols, which will elevate disputes to upper management based on pre-defined time periods. The escalation system leads to both tangible and intangible benefits as it literally resolves disputes through escalation and also provides an incentive for subsidiaries to execute their payables to avoid the unnecessary involvement of management.
BELLIN’s intuitive TMS: tm5, has a netting module that reconciles invoices and manages disputes with an ‘agreement-driven approach’.
The ‘agreement-driven approach’ is essentially a self-clearing methodology that utilizes the previously-mentioned: escalation protocol. tm5 automatically matches all receivables against payables and has an embedded dispute workflow for discrepancies. Consequently, the group company establishes group-wide agreements for disputes and will elevate them accordingly. With such an approach, all subsidiaries are involved in the entire process, disputes are mitigated and automatically escalated, and there is group-wide transparency.
BELLIN’s tm5 netting module has an intuitive interface but the key ingredient that makes it shine is that the platform has standardized functionality with the flexibility to meet the needs of all subsidiaries.
Interested in finding out more about whether netting is the right solution for you? Give BELLIN a shout or check out tm5, our intuitive treasury management system.
Florian Kolb
As a Senior Treasury Consultant and Payments Specialist, Florian Kolb is in charge of a number of implementation and process consulting projects focusing on worldwide bank connectivity. He has great experience with SWIFT/H2H connections and complex global payments projects. Before joining BELLIN in June 2016, Florian worked as a consultant in accounting for an IT systems solutions provider. He studied at Verwaltungs- und Wirtschaftsakademie (Administration and Business Academy) in Freiburg, Germany, and is a Certified SWIFT Specialist.
How the Treasury QuickScan add value to your business
| 27-8-2019 | François de Witte | treasuryXL |
Do you want to know if you can save a substantial amount of money and/or protect your company against major financial risks? Are you willing to invest time and money in treasury within your organization?
The Treasury QuickScan can help organizations with just one scan to assess if an additional effort in treasury can be an added value.
The Treasury QuickScan as a solution
SMEs struggle with increasing exposure to cash & liquidity problems, financing needs and risks (currencies, commodities, interest and liquidity).
Moreover, they do not always have a full-fledged Treasury/finance Department in the organization. That does not mean that these organizations cannot save costs or that there are no opportunities for funding, for example. It is not always necessary to set up a separate treasury department in a company to control and manage the treasury.
The Treasury QuickScan aims to bring a solution to these companies. An experienced hands-on Treasurer can do a first scan within the organization.
The objectives to provide to the company are:
A questionnaire for 5 treasury topics
By means of a structured questionnaire, the Treasury QuickScan aims to make a quick scan / diagnosis of the treasury. Down below, we provide you some questions by topic:
A short recap
The Treasury QuickScan does not solve all your treasury issues but will provide you get a mapping of the current situation, the issues, a first set of recommendations and a business case for further investments in treasury.
For organizations without a dedicated treasury department, this Quick Scan can help them to determine how to manage the treasury. This can be done with own resources and/or you can also consider outsourcing some tasks. This can be very helpful for the development of your company.
How to start a Treasury Quick Scan?
Simply send me a mail or give me a call and we discuss the best option for you.
Founder & Senior Consultant at FDW Consult
Managing Director and CFO at SafeTrade Holding S.A.
Understand Banking Asset & Liability Management
| 23-8-2019 | treasuryXL | Financial Training Hub
The management of Assets & Liabilities, known as ALM, is key to potential success of banks. The ALM strategy is set by the Board of Directors that has to decide about different financial activities in connection with two risks: interest rate and liquidity risk. This interactive course introduces you to Asset & Liability Management and the world of finance. Several workshops are included. This training is available for English and Dutch groups.
Key Takeaways
This training will learn you:
1. Yield curve impact on Asset & Liability Management
2. Gaps as basis to determine ALM exposure
3. Duration to manage the ALM mismatch
4. The use of interest rate swaps to change equity at risk
5. Basel regulation impact on capital management
6. How the new liquidity ratio’s will affect ALM
Who can do this course
The course is suitable for people that (want to) work in the financial sector. It is not necessary for participants to have specialized finance experience or education. (Duration: 1 or 2 days depending on participants experience)
Program
This training is a mix of presentations, discussions and workshops.
Topic overview:
− Interest rate margin and risk
− Liquidity risk: why?
− Short and long term interest rates
− Forward rates
− Money Duration
− Basis Point Value
− Equity at risk and supervisor minimum requirements
− Interest rate swaps and ALM
MORE INFO HERE