focus on netting
offered a number of articles, which described how netting today has become the most important instrument in the modern treasury department.
The authors also mentioned the importance of systems or platforms, which are used to implement and execute netting. However it should be also pointed that it is possible to implement netting without either, simply by creating a structure of intercompany accounts within the treasury centre. This is all that a company needs to benefit from the advantages of netting – the structure of accounts within the treasury centre is the key and all that is required.
Each group company opens the intercompany account with the treasury centre – you could also call it a netting centre. This centre can be the company’s own, or it can belong to the third party; although of course if the account is with a third party then it will be not an intercompany account.
Once this is done you only need to advise all group members to pay their intercompany obligation using their accounts with the treasury centre.
When company A wishes to pay its obligation to company B, then it initiates debit to its account with the centre and credits the account of company B with the centre. When company A funds its account with the centre, then its account with the centre will be credited.
This procedure can be executed totally manually, without involving any system. When company A wishes to settle its obligation with company B it can send a letter to the treasury centre, or alternatively an email, complete it over the phone or simply input the instruction over the internet.
In addition, funding of the account with the treasury centre can be executed in many ways: the centre could offer temporary financing; the subsidiary sends cash to the centre as and when it has any excess cash; when foreign exchange (FX) regulations require, then the subsidiary pays via bank transfer the same amount as it asks the centre to credit to the account of company B; company B participates in the pooling agreement and all cash is swept daily, or weekly, and credited to its account with the treasury center – these are just some of the possible options.
You could also add special arrangements that settlement of intercompany obligation is done only weekly, or monthly or that only summarised amounts are entered into intercompany accounts with the treasury centre. This would, however, require some additional software in order to execute netting.
However the idea of netting and especially the advantages of netting can be achieved simply through the structure of intercompany accounts with the treasury centre. This is all that is required and enables the company to fully benefit from all netting advantages.
You can also find brief description and simple implementation guide in my article
Constructing a Payment System on the Run for Intercompany Payments