Corporate financial management is not known as the most thrilling of disciplines – no place for emotions and boring columns of figures. That said, just how exciting financial management can be is evident on our YouTube channel: with over 5,700 clicks, the “Intercompany Reconciliation and Netting – Eliminate Uncertainties” video is our most frequently watched tutorial. With good reason, too: group-wide reconciliation, making “peace” among the group companies – there is real dramatic potential here.
Few other treasury disciplines are characterized by the same discord and procrastination; at the same time, no other discipline can measure up when it comes to saving resources, allocating them justly and using them effectively.
Netting and Reconciling Your Intercompany Trades
What are reconciliation and netting all about? Individual group companies – a bit like the different branches of royal dynasties – like to focus on their own figures and their own wellbeing. Considering others and seeing the big picture appears to be difficult. Payments to sister companies are delayed, which represents a waste of liquidity and means that smaller group companies are lumbered with the refinancing costs. There is often disagreement on who should be paying, for example when it comes to fees, and this can obscure the picture and distort analyses. Hedging commodity and FX risks can be particularly problematic for groups without a netting process in place.
So how can software help support the intercompany reconciliation process? Web-based and fully integrated Treasury Management Systems can be accessed by users worldwide: they can all work with the system at the same time, and any data and processes are available on one single groupwide platform. Cash flows from all group companies converge in the Netting Center. This not only leads to a considerable reduction of cash in transit but also allows for gross/net comparison and virtual settlement; moreover, the process enables effective hedging of FX risks. With BELLIN’s netting concept, AgreementDrivenNetting®, payments are reconciled when they’re posted and not just when the payment is due. Receivables and payables can be reconciled automatically, and a straightforward interface to the ERP system allows users to write off outstanding receivables. A structured process also means greater visibility for the entire group in case of disagreements and provides a solid footing for clarifying such cases. This is motivation for all companies to do their bit and contribute to a successful netting process. It also makes sure management have all the information they need for strategic decision-making.
All of this explains why it is the netting and intercompany reconciliation video that has received so many clicks and likes: a “classic drama” that shows how divided and estranged camps can reunite to form a team. But why don’t you see for yourself.