GTreasury

Commentary

The relentless search for efficiency and cost reduction: this is the lot of every treasurer. One of the first, and most obvious, targets is netting – so much so, that it is often taken for granted. This call was an opportunity to check up on what our peers are doing, and the latest developments.

The most obvious – and frequent – area for netting is intercompany transactions. The benefits are clear: the elimination of spreads on FX transactions which are no longer required, the reduction of bank charges and fees, the optimisation of funding, and the imposition of enhanced discipline in settling intercompany invoices.

This basic transaction has been extended: while traditional intercompany netting is cash settled, an increasing number of peers are turning netting into an in-house bank. In this case, all intercompany transactions are booked into an account with the parent company – from the subsidiary’s point of view, this means the invoices have been settled. The in-house bank will decide when, and if, the intercompany accounts are settled. This same account can also be used for third party transactions, under POBO/ROBO arrangements, significantly reducing the number of cash transactions in the subsidiaries.

Also, many peers net transactions with their banks: instead of settling all FX transactions with each bank, some peers use regional treasury centres to settle on each other’s behalf. It is also possible, for example, if there are gains and losses on hedging transactions, to net settle with each bank, or get the banks to settle between each other on behalf of the company. This reduces the.....