What is Netting in Treasury and How Does it Work? With Craig Chapman

💲 We simplify Corporate Treasury Concepts - 🎙️ From the podcast Corporate Treasury 101

What is Netting in Treasury and How Does it Work? With Craig Chapman

Netting in Treasury by Craig Chapman

Welcome to the world of treasury operations! Managing a company’s treasury has become a strategic priority in today’s interconnected world, and mastering the art of Netting in treasury is key to achieving efficiency, savings, and success. It’s not an easy task, though. With ever-evolving trends, advanced technologies, and new financial regulations, the role of treasury professionals has become more complex. But fear not! Amidst these complexities, there are opportunities to streamline operations, cut costs, and drive business growth.

In this article, we’re thrilled to introduce Craig Chapman, a senior manager at Actualize Consulting. Craig specializes in treasury systems, treasury transformation projects, and the fascinating world of multilateral Netting. His wealth of expertise lies in treasury cash management, including critical areas like in-house banking and multilateral netting structures.

With over 20 years of experience implementing treasury technology and transforming departments, Craig has worked with top treasury management system providers and a big four consulting firm. He has been dedicated to optimizing treasury operations across diverse industries for six years alongside the exceptional team at Actualize Consulting.

Throughout this article, you can expect to learn about the following:

  • What Is Netting
  • What Is Bilateral Netting
  • What Is Multilateral Netting
  • Why And How Companies Use Netting
  • The Different Forms Of Netting
  • The Benefits Of It And The Challenges That Come Along With the Implementation Of Netting
  • A use case Craig implemented for a client of Actualize Consulting.
  • What the team of Actualize Consulting does in terms of treasury offerings
  • And much more

So, without further delay, let’s dive into the fascinating world of treasury operations!

What are the Different Types of Netting in Treasury Management?

Netting is a common concept in the treasury management world, and it was discussed in depth by Craig Chapman of Actualize Consulting in a recent conversation. Let’s break it down to ensure it’s crystal clear.

A Closer Look at the Types of Netting

There are mainly three types of netting methods, each serving a unique purpose in treasury management:

  1. Settlement Netting: Here, subsidiaries aggregate and offset the amounts they owe or receive from a particular vendor, resulting in a single net difference. This method is more commonly used for intercompany payments, as it simplifies the cash reconciliation process.
  2. Bilateral Netting: Involving two parties (a supplier and a client), bilateral netting aggregates invoices into a single agreement, resulting in a single net payment stream. This method reduces the number of transactions and accounting costs, such as bank fees. However, its limitation is that it only involves two parties.
  3. Multilateral Netting: This method is used when a company purchases goods and services from affiliated companies. It consolidates intercompany transactions and calculates internal settlements instead of making multiple external payments. At the end of each month, a single payment is made in the base currency. This method increases efficiency and is a step up from bilateral Netting.

The Purpose of Netting

The whole idea behind Netting is to simplify the payment process. Instead of making multiple payments, whether in a bilateral, multilateral, or settlement setup, you aggregate the balances, consider everything, and make only one payment. This practice is commonly applied to subsidiaries, called “participants” in the netting cycle.

The Role of a Netting Center

A central entity called the “Netting Center” was established to facilitate the netting process. It becomes a party to all intercompany transactions and holds all the currency accounts needed to satisfy the netting center activity for the month. This setup eliminates the need for multiple bilateral transactions and subsidiaries to purchase foreign exchange (FX) individually. The process is centralized, making it more streamlined and efficient.

The first step in this process is determining who can participate in the netting cycle. After going through a legal and tax review, approved participants can start to participate in the cycle. During the cycle, all multilateral payments between participating entities are consolidated, offset, and reduced to a single transaction to or from each participating entity by accounts held at the centralized netting center.

In essence, the netting center serves as the hub for all transactions, with all other entities interacting with it but not directly with each other. The netting center handles the conversion and consolidation of all invoices, even those in different currencies, into the entity’s base currency.

Why Do Companies Implement Netting?

The primary motivation for companies to implement Netting is to reduce the cost of making payments. It brings structure and discipline to the intercompany process. Moreover, while it’s more common for intercompany transactions, Netting can also settle third-party transactions, offering even more flexibility and efficiency.

How is Netting Similar to Shared Expense Apps like Splitwise?

A simple yet fitting analogy in the conversation by Hussam compares the concept of Netting in treasury management to the functioning of shared expense apps like Splitwise. Let’s further explain how the two concepts are parallel.

A Friendly Comparison: Netting and Shared Expense Apps

You may have used apps like Splitwise on trips with friends. Everyone pays for different things – dinner one night, a taxi ride another day, etc. Instead of constantly trading money back and forth, you put everything into one account. At the end of the trip, the app calculates who owes what to whom, and then each person only needs to make one payment. This makes settling expenses a lot easier, and it’s a situation where everyone wins.

This is very similar to how netting works in treasury management. Instead of having multiple transactions between subsidiaries or participants, as they’re often called, all transactions are consolidated into a single net payment. It significantly simplifies the process, much like Splitwise does for shared expenses among friends.

One Key Difference: Currencies

Craig Chapman pointed out one key difference. While in your friendly trips, you’re likely dealing with just one currency, netting in a global business context deals with multiple currencies. But even then, the basic principle remains the same.

Like how you and your friends dealt with euros and pounds during your UK trip, subsidiaries in a netting cycle could deal with transactions in various currencies. But, as mentioned before, the netting center consolidates all these different currency transactions and converts them into the entity’s base currency, simplifying the process.

So, to put it in plain terms, Netting is like the Splitwise app for treasury professionals. It aggregates multiple transactions, calculates who owes what to whom, and makes the payment process smoother and more efficient. It’s one of the many tools that make life easier in the complex world of treasury management.

How is Netting Different from Cash Pooling in Treasury Management?

A question that might be floating in your mind is – what sets netting apart from cash pooling in treasury management? The two seem similar, but there are some key differences. Let’s explore these differences more thoroughly.

Cash Pooling: The Starting Point

Craig Chapman explains that cash pooling is a stepping stone to an in-house bank. To help you understand, imagine cash pooling as managing a checkbook. It’s about tracking the opening position, receipts, and disbursements. Cash pooling typically occurs between a parent company and its subsidiary.

On top of this cash pool arrangement, an in-house bank can layer, enabling the option to charge or pay interest. But cash pooling primarily involves monitoring which makes the transfers or, as Craig puts it, “who calls EBA movements.”

Netting: The Evolution

On the other hand, Netting aims to handle the flurry of intercompany transactions – the ‘churn’ as Craig describes it. One company he mentions deals with 90,000 invoices per month in 17 different currencies with 50 different participants. That’s a lot more dynamic than cash pooling.

Netting’s main goal is to streamline this process. It reduces costs, minimizes cross-border transfers, and limits the number of funding requests. It lets a company view intercompany balances and manages its foreign exchange exposures.

The Physical Movement of Cash: A Key Difference

Guillaume adds an important point to this comparison. He states that Netting’s whole purpose is to minimize cash movement, which is physically transferred (typically daily) from one account to another, unlike in cash pooling, where cash is physically transferred (typically daily). In Netting, the cash movement occurs only once a month for the aggregated balances.

In simple terms, cash pooling sees more regular physical transfers of money, whereas Netting focuses on limiting these transfers, making it a more streamlined process.

Craig agrees with this comparison, noting that the bank typically triggers this physical transfer in cash pooling at the end of the day.

So, in a nutshell, while cash pooling and Netting are tools used in treasury management to handle transactions and balances, they differ in their operation and objectives. Cash pooling is like maintaining a checkbook, tracking the daily ins and outs of money, while netting serves to minimize the movement of cash, focusing on once-a-month transactions, thereby simplifying the management of intercompany dealings.

What are the Primary Benefits of Multilateral Netting?

You might be curious about the benefits of multilateral Netting, particularly in treasury management. Our guest, Craig Chapman, shares some valuable insights about this.

Streamlining Intercompany Payments

Multilateral Netting simplifies the settlement of intercompany payments. It can reduce many transactions – like the 90,000 Craig mentions – down to a single payment or receipt per participant. This means fewer transactions to track and less administrative burden for your team.

Improved Visibility into FX Exposures and Cash Balances

Netting allows a clearer view of your intercompany foreign exchange exposures and cash balances. If your company deals in various currencies, Netting helps you pinpoint these exposures, allowing you to manage them more effectively. It’s all about having a controlled, comprehensive view of your situation.

Lowering Transaction Costs

The next benefit lies in cost-saving. Netting lowers transaction costs by reducing the number of payments, funding requests, and manual wires. This operational optimization saves money and time, contributing to efficiency.

Minimizing Risks and Enhancing Compliance

Another advantage of Netting is risk minimization. Cross-border transfers are often riskier. By decreasing these transfers, Netting reduces this risk. Additionally, it helps improve audit and accounting compliance, easing reconciliation at the end of the month.

Reducing Physical Intercompany Settlement

Lastly, Netting cuts down on the physical intercompany settlement or ‘churn,’ as Craig calls it. This further simplifies the process and reduces the potential for errors.

Handling Multiple Currencies in Multilateral Netting

Let’s take a deeper dive into managing multiple currencies in multilateral Netting.

In a netting center, you choose a base currency for the entire program, such as Euro, USD, or GBP. Each participant (entity) then has a single, functional currency. All payments or settlements for that entity will be in their functional currency.

Every month, you enter the foreign exchange rates. If you have an invoice in a different currency, the system will calculate its value in the base currency. It does this by triangulating the rates. It keeps a running subtotal of what is paid and what is due, giving you a net number to settle with the center.

In this way, multilateral Netting simplifies currency management. You can see a clear, simple statement of transactions, making the process more understandable and manageable.

Simplifying Payments through Netting
Photo by Kindel Media on Pexels

Why Do Companies Do Intercompany Transfers?

Let’s step back a bit and discuss why intercompany transfers are necessary in the first place. Our guest, Craig Chapman, explains this very concept.

Sharing Resources within the Company

Companies often have various entities under their umbrella. They do intercompany transfers to share resources like goods or services. For example, one part of a cleaning company might have an excess of a certain product, and another could be short of it. In this situation, the product is sent from one entity to another, and the receiving entity must pay for it. This creates an obligation, typically represented by an invoice.

Why Set Up Different Entities?

You might wonder why companies need different entities. The answer lies mainly in tax and legal reasons. Different regions have different tax laws and regulations, and companies often structure themselves to gain maximum tax benefits. This approach is also helpful for managing acquisitions and facilitating accounting procedures. For instance, if a company has a presence in different regions or offers various products, separating these parts of the business into different entities helps track everything separately.

What Are the Benefits of Multilateral Netting in This Scenario?

So, where does multilateral netting fit into this picture? Here’s where it gets interesting.

Simplifying Payments

Between different entities in a company, goods or services will be exchanged. This creates a situation where multiple payments are due at different times. However, instead of making every payment immediately, companies wait until the end of a cycle (a day, a week, a month, etc.). They add up all the owed amounts and only pay the net difference. This is the essence of multilateral Netting.

Minimizing the Impact of Intercompany Movements

The netting process simplifies everything by minimizing the impact of intercompany movements. It eliminates the need to deal with different exchange rates, bank transfer fees, and other complexities for each transaction. This especially benefits multinational companies with multiple entities and complex tax scenarios.

In a nutshell, intercompany transfers allow companies to function smoothly and share resources. Multilateral Netting then streamlines these transactions, minimizing costs and complexity.

How Does Multilateral Netting Work and What Are Its Technicalities?

Craig Chapman elucidates the concept of multilateral Netting. He takes us through the process and shares how this system operates at a high level.

The process of multilateral Netting takes place in a ‘netting cycle.’ This cycle is comprised of two parts – processing and closing.

Processing the Netting Cycle

The first step of processing the netting cycle is to ‘open’ it. Opening the cycle means it’s ready to start receiving invoices for consideration.

Next, preliminary foreign exchange (FX) rates that apply to the cycle are entered. These rates can change throughout the cycle. The company may use a rate as of a specific date and refresh it before closing the cycle. Typically, these rates aren’t updated daily but are fixed on specific dates to match the accounting books.

The next stage is to generate preliminary statements. After inputting all invoices and FX rates, the system generates these statements for each participant (i.e., each entity in the company). These statements offer a snapshot of what each participant might owe or receive. It also allows participants to dispute any items they feel are incorrect.

Closing the Netting Cycle

After all the processing steps, we move to closing the cycle. Here, the final FX rates are input, after which the system processes the settlements. When discussing settlements, we refer to the net amount each participant owes or is due to receive.

After settlements are processed, external payments are released to the bank if needed. Then, the system distributes the final statements to the participants. These final statements provide a definitive record of the transactions during that cycle.

The cycle then closes and waits for the next month to open again. This process, when set up correctly, is 99% automated. It merely requires someone at the corporate level to manage the inputs, distribute the rates, and send the payments out.

In summary, multilateral Netting is a highly automated and efficient system for managing intercompany transfers. It simplifies the process, making it easier for companies to handle internal transactions and mitigate potential financial risks. It’s a tool that all treasury professionals should understand and utilize for optimal financial management.

Payment Terms in A Netting Cycle and The Challenges Before Implementing It

In this section, Guillaume and Craig delve into the nitty-gritty of payment terms during a netting cycle and the typical challenges a company might face before implementing a netting system.

Payment Terms in a Netting Cycle

First, Guillaume wonders whether payment terms must be the same across all group entities during a netting cycle. To answer this, Craig explains that it’s up to each company to decide which invoices they want to include in a given cycle.

This choice can be based on various factors, including the invoice’s due date and the company’s readiness to make or receive payment. This flexibility allows companies to manage their cash flows and reduce potential disputes during the netting cycle. Companies can filter which invoices they want to include based on these due dates, effectively controlling the terms.

Interestingly, considering the due date, you can select which invoices to include in the cycle. The due date also considers the agreed-upon terms when establishing relationships between the vendor and the entity.

A typical netting cycle generally lasts one calendar month, aligning with the company’s accounting cycle. The cycle usually closes on the last business day of the month and settles either that or the following day.

Challenges Before Implementing Netting

Before implementing a netting system, companies, especially large multinational companies with complex legal structures, might face several challenges before implementing a netting system.

  1. High Payment Volumes: Companies may deal with high bank transaction fees due to large payment volumes. This also exposes them to settlement risks and high foreign exchange (FX) payment costs. Implementing Netting can help reduce these payment volumes and associated costs.
  2. Inefficient Use of Resources: Manual efforts to enter and release payments and time-consuming general ledger (GL) posting processes might drain resources. This is especially true when dealing with transactions across many countries. By automating these processes, Netting can bring more efficiency.
  3. Compliance Issues: Companies might struggle with ensuring that intercompany invoices are settled within the payment terms, which might result in legal and tax compliance issues. Furthermore, they might want to reduce FX payment costs. Netting can help address these issues by providing an automated and standardized process.

Overall, multilateral Netting provides a system that allows companies to manage payments, disputes, and cash flows effectively. It is a solution to some of the challenges that large multinational companies face, and understanding how it works is crucial for treasury professionals.

Payment Settlement in Netting Cycles: Physical vs. Internal Methodologies

In a netting cycle, managing payments is an essential process. Craig Chapman, an expert in this area, shares valuable insights on two key payment settlement methods—physically and internally. He also delves into the concept of intercompany movements and how interest comes into play during these transactions.

Payment Settlement: A Dual Approach

A netting cycle combines and converts an entity’s transactions into a single local currency. This amount must then be paid or received from the netting center. Craig emphasizes that companies have flexibility in choosing how to settle this amount. They can opt for the following:

  1. Physical Settlement: In situations where in-house bank account settlement isn’t allowed by country-specific regulations (like in Taiwan, Singapore, or China), companies must physically send out the payment.
  2. Internal Settlement: A company can settle internally if it has an established in-house banking structure. This eliminates the necessity for a wire transfer to go out of the participant’s or the netting center’s physical bank account.

Craig suggests that companies can utilize a hybrid approach—combining physical and internal settlements across their program. If an in-house bank is available, leveraging internal settlements can be beneficial to reduce the volume of physical payments.

The Interplay of Intercompany Movements and Interest

Craig dispels the misconception that internal settlements might create an intercompany loan. Instead, he explains that these movements lead to an adjustment—either an increase or a decrease—to the company’s In-House Bank (IHP) balance. Unlike a loan, these movements don’t involve terms and conditions.

Further, these alterations to the IHP balance affect interest—positive balances yield interest, while negative ones require interest payment.

Once the monthly netting amount is determined, it transitions into another regular intercompany transaction in the in-house bank. The in-house bank then calculates the interest, handles any applicable withholding taxes, and can settle this interest physically, internally, or by capitalizing it to further adjust the balance.

How a company settles payments during a netting cycle can significantly influence its financial management. Treasury professionals, therefore, need to understand these different strategies to optimize their company’s financial operations.

Unraveling the Concept of In-House Banking: Its Operation, Benefits, and Integration with Netting

The concept of in-house banking may seem new to some, but it plays a crucial role in financial management within large corporations. Treasury expert, Craig Chapman, provides an in-depth understanding of what an in-house bank is, how it operates, and the advantages it brings to a company. Moreover, he highlights how it interacts with Netting to optimize financial transactions.

In-House Bank: A Corporate’s Personal Bank

Craig explained that an in-house bank acts like a regular bank but without the accompanying fees and interest. Instead of relying on an external bank, an in-house bank utilizes the corporation’s own money to manage financial transactions.

Imagine a scenario where your entity has an excess of ten million dollars. The in-house bank would take this money and use it to fulfill other obligations within the company. The process can be likened to managing a checkbook—you have an opening balance, record all transactions (incomes and expenses), and then have a closing balance.

The closing balance is the entity’s position with the in-house bank. If the entity is “long,” it’ll receive interest; if “short,” it’ll pay interest. The in-house bank pools the corporation’s money together and then redistributes it as needed.

Maximizing Efficiency and Minimizing Costs

One primary advantage of an in-house bank is it reduces external transaction costs. Craig illustrates this by highlighting how an entity doesn’t need to pay a markup for a specific currency to an external bank if it can get it from its in-house bank.

Furthermore, the in-house bank can employ sophisticated models to handle payments on behalf of subsidiaries (POBO), thus avoiding the need for subsidiaries to hold accounts in various currencies.

Integrating Netting with In-House Banking

Craig points out the synergies of combining Netting with in-house banking. Much like Netting, the in-house bank serves as the center that controls all transactions. However, unlike Netting, which typically involves internal transfers, an in-house bank also manages many external transfers.

By aligning Netting and in-house banking, a company can settle with the in-house bank and avoid sending out external payments unless necessary. Integrating these two strategies allows for more streamlined financial operations within the corporation.

To sum up, in-house banking offers a strategic way to streamline financial operations within a company. By integrating it with Netting, corporations can make the most efficient use of their capital, thereby driving economic efficiency.

Managing Taxes through Netting
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Understanding Payables-Based and Receivables-Based Netting: Key Differences and Optimal Approach

One of the questions brought up in the conversation focuses on the differences between payables-based and receivables-based Netting. Craig Chapman shares insights into the nature of these two types of Netting and discusses their applications, advantages, and limitations.

Payables-Based Netting: The Popular Approach

As Craig describes, Payables-based Netting involves the party receiving payment (payee) responsible for inputting or interfacing the invoices. This process gives them control over the settlement in the netting cycle. Many companies often favor this method, primarily due to its simplicity and efficiency in reducing external payment costs.

However, the payer (the one making the payment) typically retains the right to block any invoice they don’t wish to pay in the current cycle. This flexibility can lead to increased disputes, but it’s an allowable practice in the business world.

Receivables-Based Netting: Less Common but Available

On the other hand, receivables-based Netting flips the responsibility to the payer, who inputs or interfaces the invoices. The method controls the netting cycle based on sales receipts, which differs from the payables-based approach.

Craig shares his observation that companies rarely choose this path. The primary reason is that receivables are harder to control compared to payables. While payables are predictable – you know the amount and the due date – receivables fluctuate depending on when someone decides to pay.

Bridging the Gap Between Payables and Receivables

Guillaume challenges this notion arguing that since an account payable for one entity is an account receivable for another, the inputting entity should not make a significant difference.

Craig explains that more reliable and predictable payables are generally the preferred choice. On the other hand, receivables fluctuate based on payments, making them less predictable and harder to interface.

While payables-based and receivables-based Netting is available to handle invoices, most corporations lean towards payables-based Netting. The predictability of payables, the control it provides over settlement cycles, and the cost-effectiveness of external payments make it a more favorable choice for companies.

Key Considerations When Setting Up a Netting Program: Technology, Location, Tax, and Regulatory Aspects

Guillaume raises a question about the main aspects to consider when setting up a netting program for a large company. Craig outlines four primary considerations: technology, choice of netting center location, tax impacts, and regulatory issues.

Choosing the Right Technology

Technology is a significant factor in establishing a netting program. You need a product that efficiently performs all necessary functions, such as generating preliminary and final statements. The system should also support payables or receivables and be accessible to the participants.

The first step involves evaluating and selecting software specifically designed for Netting. This isn’t a task you’d typically do in Excel, so ensuring you have the technology to do the job is essential.

Netting Center Location

The second consideration is choosing the netting center location. This decision can have potential tax drawbacks or benefits, making it vital to involve your tax team in the decision-making process. Usually, companies locate their Treasury Centers in tax-friendly places like Luxembourg, Switzerland, the UK, Netherlands, or Ireland; however, where your business is also playing a part in this decision.

Understanding the Tax Impacts

The third point to consider is the tax impacts. Certain countries may require you to pay withholding taxes. Knowing these tax implications is important when deciding which entities can participate in your netting program.

Navigating Regulatory Issues

Lastly, you must navigate regulatory issues. Laws at the local level define which countries can participate in Netting and what restrictions are in place. Some countries allow participation but require reporting to the central bank, while others prohibit participation entirely. This is where a thorough tax and legal review comes into play.

To wrap it up, these four areas – technology, location, tax, and regulatory aspects – are key to consider when setting up a netting program. These factors help ensure the program runs efficiently and complies with relevant laws and regulations. While there are other considerations during implementation, these are the primary factors to focus on at the start.

Role of Technology and Cross-Departmental Collaboration in Setting Up a Netting Program

The discussion moves towards understanding the technological requirements for a netting program and the importance of cross-departmental collaboration.

Can Treasury Management Systems (TMS) Handle Netting?

Guillaume questions whether a TMS or a specialized tool is suitable for handling Netting. Craig clarifies that the most popular TMSs, including Kyriba, FIS Quantum, and G Treasury, can manage Netting. It’s essential, however, to evaluate these systems and consult references to ensure they can successfully handle your netting needs.

It’s More Than Just Treasury: Cross-Departmental Collaboration Is Essential

Hussam mentions that setting up a netting process is more than just a treasury operation; it involves various departments within a company. Craig agrees and elaborates on how crucial cross-departmental collaboration is.

  • Accounting team: They monitor, enter, and reconcile intercompany balances and payments. While they don’t execute the Netting, they are responsible for reconciling transactions.
  • Corporate and international tax teams: They advise on the netting structure and research tax regulations to determine who can participate in the program. They also liaise with local teams to comply with local tax regulations.
  • Financial operations and ERP teams: They manage data exchange, such as integrating invoices from an ERP into the TMS at either an individual invoice level or an aggregated level.
  • Legal team: They draft the netting agreements, set the terms and conditions, and handle any ongoing document requirements at the country or local level.
  • Treasury team: They manage the netting cycle, execute settlements, manage FX, oversee trade execution, monitor compliance, and play a key role in technology selection.

In conclusion, setting up a netting program involves multiple departments within a company, making it a team effort. Each department plays a crucial role in ensuring the smooth running of the program, making netting a whole-company concern rather than just a treasury task.

Netting and Cash Forecasting
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Netting and Cash Forecasting: Unraveling the Complexity

Contrary to concerns about the complexity of Netting interfering with cash forecasting, Craig Chapman reassures us that this isn’t the case. He describes intercompany movements, integral to Netting, as “net-net” transactions. According to Craig, these transactions are essential ‘washes’ that balance out in a consolidated forecast, thereby not creating major complications in cash forecasting.

Here’s a simple way to understand this: Imagine if one part of a company expects to receive a million dollars, and another part would forecast paying that same amount. So, in the bigger picture, the total amount comes to zero, proving that Netting doesn’t disrupt cash forecasting.

The Role of Industry Type in Intercompany Transactions

Regarding the volume of intercompany transactions, it turns out that industry type can indeed play a role. According to Craig, this can vary significantly on a case-by-case basis. For example, a consumer products company might see a high volume of transactions due to its extensive customer base.

But don’t worry; effective management is possible even in high-volume cases. Craig suggests summarizing these transactions and incorporating them into the overall financial strategy at a high level. The key takeaway is that regardless of the industry or business operations, there are always ways to efficiently manage intercompany transactions.

Multilateral Netting and Treasury Consultation: A Comprehensive Service

Actualize Consulting, represented by Craig Chapman, offers a full-circle service in multilateral Netting. From discovery to implementation and post-launch support, they walk clients through every process step. They begin by partnering with tax and legal teams for thorough market data collection to inform decision-making. This also involves planning stages, setting clear goals, objectives, and a comprehensive roll-out plan for the implementation process.

Once a detailed roadmap is laid, they proceed to the design stage. Here, they develop an approach for implementation, addressing potential limitations, like country participation constraints. The final stage is implementing the chosen technology, a treasury management system (TMS) or an enterprise resource planning system (ERP).

A Case Study: Implementing Netting in a High-Volume Scenario

Craig brings this process to life with an example of a client in the cleaning and hygiene products sector. With revenues of just under $3 billion, this company had an impressive customer base of 85,000 across 80 different countries. This resulted in a high volume of invoices and operations across 17 currencies.

Facing an aggressive timeline of 60 days, Craig’s team replaced a legacy netting system with a new one in this high-volume, multi-currency context. The solution was the Kariba SaaS TMS, integrated with the client’s SAP system. The client could reap multiple benefits, including massive cost reduction, a streamlined settlement process, and more control over payments and foreign exchange.

Key Takeaways

From his experience, Craig underscores two crucial factors for a successful netting implementation.

Firstly, he stresses the importance of involving tax and legal teams early. Their involvement is pivotal in setting up a successful program and ensuring compliance across all jurisdictions.

Secondly, choosing the right consulting partner to assist in designing and implementing the program is equally critical. Their expertise can steer the process, ensuring a smooth implementation that meets all the specific needs and requirements of the organization.

What is Actualize Consulting, and What Do They Do?

In the words of Craig Chapman, this firm is a boutique professional services provider known for its treasury and risk management expertise. Founded in 2003, they have a solid client base of over 300 Fortune 1000 companies.

The Core Services

Actualize Consulting is a one-stop shop for companies seeking to streamline their operations. Their services aim to improve business processes and optimize the use of technology, enabling companies to run more efficiently. Let’s take a look at the areas they specialize in:

  • Treasury Operations: They manage cash and payments and help structure debt and investment strategies. Perfect for keeping your cash flow in check.
  • Risk Management: We live in a world full of uncertainties. That’s why risk management matters. Actualize Consulting has your back, offering hedge strategy advisory and financial exposure management services.
  • Technology Advisory: Tech can make or break your operations. That’s where Actualize comes in. They evaluate your tech setup, identify what’s missing, create a plan, recommend vendors, and help implement systems.
  • Business Intelligence: Making informed decisions is key to staying ahead. Actualize’s custom business intelligence reporting service provides you with data-driven insights.
  • Health Check Service:  They take a thorough look at your current system, spot potential tech issues, and make a plan to boost efficiency.
  • Cash Management: To manage your cash inflow and outflow effectively.
  • In-House Banking: To set up internal banking structures, centralizing your cash management.
  • Debt And Investment Tracking: To check your company’s debts and investments.

Actualize Consulting operates from its headquarters in Northern Virginia, with additional offices in New York, London, Canada, and Mexico. This wide presence enables them to serve and support local clients effectively across the globe.

Wrapping Up:

Optimizing treasury operations in this dynamic business environment has never been more crucial. From exploring the world of multilateral Netting to understanding the comprehensive treasury consulting services at Actualize Consulting, this article has walked you through some of the most vital aspects of modern treasury practices.

We’ve learned that multilateral Netting can be an effective tool to reduce the complexity of intercompany transactions and save costs, as shared by Craig Chapman. His successful implementation of a netting process in a large-scale company served as an excellent example of how this practice can improve efficiency and financial control.

We’ve also dived into the broad array of services offered by Actualize Consulting, showcasing their commitment to enhancing every aspect of treasury operations, whether it’s workstation implementations, risk management, or the unique “Health Check” service.

So, as you navigate the complex waters of treasury management, remember to keep these insights in mind. The goal is to manage your operations and strive for continuous optimization. As Craig Chapman stated, selecting the right consulting partner can make all the difference in your journey. Whether you’re considering implementing a netting process or simply seeking to improve your treasury systems, the lessons gleaned from this discussion can serve as a valuable guide.

Remember, successful treasury operations hinge on clarity, coherence, and a thorough understanding of your business’s unique needs. With the right strategies and partners, you can take your treasury operations to new heights of efficiency and effectiveness.

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