Multilateral netting is one of the most underestimated ways to optimise intercompany payments and group performance. In this Executive Interview, Eleanor Hill, Editor, asks Martin Bellin, Founder and CEO of the BELLIN Group, to explain why multilateral netting deserves a little more attention, and how treasurers can make the most of it.
Eleanor Hill (EH): First things first: what exactly is multilateral netting and why should treasurers be interested?
Martin Bellin (MB): In simple terms, multilateral netting is the evolution of bilateral netting – and involves group treasury running a netting centre to handle all intercompany payments. This acts as a reconciliation hub across the entire group: information about payables and receivables is delivered by the respective group companies to the netting centre and settled for the eligible subsidiaries by the netting centre. This avoids direct payments between the different subsidiaries, increases transparency and visibility and vastly reduces the number of intercompany payments within the group.
EH: So, is multilateral netting an accounting topic or a treasury topic?
MB: That’s a good question, because any process that begins with the reconciliation of every single invoice issued within the corporate group is an accounting procedure. But as a result of that reconciliation, it is possible to run a multilateral netting process straight away, which is a treasury responsibility, because treasury has to cover the interest on any positions caused by unreconciled and unpaid invoices as well as the associated FX risk.
As such, multilateral netting is a cross-functional effort – and seeing it this way is one of the key ingredients for success. So, if the treasury function wants to implement a multilateral netting process, they should get accounting on board. Buy-in from both sides is essential and both accounting and treasury stand to benefit.