Global Intercompany Reconciliation and Netting with Centralized FX Management

How REHAU consolidates 60,000 internal invoices per month at the touch of a button
Rehau_HEADER

Netting helped REHAU to:

  • Gain full visibility and transparency into intercompany business
  • Standardize payment periods and reconciliation and settlement processes
  • Consolidate 60,000 invoices per month at the touch of a button
  • Achieve ROI after 2 months due to FX savings alone
  • Integrate regulatory requirements into its processes using a netting rule book
  • Centralize intercompany FX management
  • Improve terms for FX trading
  • Improve intercompany risk management
  • Gain visibility and transparency into intercompany financing

Company and starting point

The REHAU Group is a Swiss family-owned polymer business, with five divisions: Automotive, Building and Infrastructure Solutions, Furniture Solutions, Window Solutions and Industrial Solutions. It has around 20,000 employees at more than 170 locations across five continents and 56 countries and generated sales revenue of several billion euros.

As it operates across a large number of production sites, sectors and markets, the company achieves significant synergies in procurement and throughout the entire value chain. However, this structure leads to a very high level of complexity in intercompany business and to a lack of clarity in relation to the financing of the group’s individual entities. There was also insufficient visibility over the group’s FX transactions and therefore limited control of FX risk.

With 60,000 intercompany invoices per month, processing, reconciliation and settlement involved a lot of work and incurred correspondingly high bank fees. The company therefore wanted to use group-wide netting to drastically reduce the time and effort associated with intercompany business, standardize and automate processes across the group and centrally manage FX volumes and intercompany financing.

Company and treasury profile

  • Number of employees: 20,000
  • 170 locations in 56 countries
  • Strong commitment to emerging markets, such as Eastern Europe, South America, Africa and Asia
  • Group-wide use of tm5 for
    • Cash and FX management
    • Risk management
    • Liquidity planning
    • Intercompany reconciliation and netting

 

The challenges in intercompany trade: large volume, non-standardized processes and country-specific regulatory requirements

In addition to the vast number of intercompany invoices that need to be processed across the group, the lack of standardized processes and the fragmented system landscape presented the treasury team with particular challenges.

Each company used its own systems to create intercompany invoices, including SAP and local accounting systems. Individual companies used a variety of different processing procedures and bookkeeping processes at local level to deal with intercompany invoices. To top it all off, there was no unified group-wide approach when it came to intercompany reconciliation.

The situation was exacerbated by the fact that different countries have different regulatory requirements in relation to netting.

The solution: netting with standardized processes, integrated regulatory requirements and centralized FX management

Netting at REHAU

In collaboration with BELLIN, REHAU introduced a netting model, split into a reconciliation and a netting process, using tm5. The model enables all intercompany invoices that are due by the end of the next month to be consolidated that month.

Data preparation for the netting process in tm5

The reconciliation process

On the last calendar day of the reporting month (T), the companies in the group start the reconciliation process by importing the intercompany invoices into BELLIN’s system. Three import processes with different timelines are available: automatic upload from the ERP system, manual file upload and manual entry. While the automatic import takes place immediately, an extra calendar day is available to companies for manual processes.

The model allows two days for the automatic reconciliation process in tm5. All invoices that are not automatically matched are reconciled manually within 3 days of import.

The companies then have 12 days to transfer their invoices to the netting center.

The netting process

In the subsequent netting process, the netting center consolidates the submitted invoices, prepares and issues the netting statements a day later and executes the payments to the beneficiary accounts seven days later.

The netting rule book

Netting with BELLIN’s system is a smooth process because it is agreement-driven and offers automated digital escalation where there is uncertainty. However, this requires all participants in the netting process to adhere to strict rules.

REHAU’s treasury team worked in tandem with the BELLIN consultants to develop a netting rule book for the group. The rule book sets out the relevant processes and contains all the information the companies need regarding netting, including:

  • Where the netting center is located
  • Which of the group’s companies participate in netting
  • When invoices must be submitted
  • When the value date for payments falls
  • How exchange rates are determined
  • How FX risks are to be hedged

With the netting rule book, the group’s treasury team not only achieved a fundamental harmonization of processes in intercompany business. It also helps the treasury team meet internal compliance standards and complex country-specific regulatory requirements in relation to netting and enables it to adapt quickly to changes.

Integration of country-specific netting regulations

Country-specific regulatory requirements require different approaches to netting. To ensure that these requirements can all be met within a common netting cycle, REHAU carries out two different reconciliation and netting processes in parallel every month.

  1. REHAU uses real netting for group companies that are allowed to offset their intercompany cash flows.
  2. Companies that are not permitted to perform netting, i.e. that do not have a final net cash flow, nevertheless participate in the monthly reconciliation process. However, the payment process is carried out separately. These participants are “virtual netting clients” and pay and receive money directly from the relevant counterparties.

Real netting
AE, AT, AU, BE, BG, CA, CH, CZ, GE, DK, EE, ES, FI, FR, GB,  GR, HR, HU, IT, LT, LV, MX, NL, NO, NZ, PA, PL, PT, RO, SE, SG, SK, US,  

 Virtual netting
AR, BA, BR, BY, CL, CN, CO, GE, ID, IN, KZ, MK, MY, PE, PH, RS, RU, TH, TR, TW, VN, ZA 

Netting and FX management: the benefits of centralization

Netting the cash flows of intercompany business centrally also allows intercompany FX management, and with it the group’s internal currency risk, to be centralized. At REHAU, a netting cycle usually handles a volume of about EUR 100 million, of which the equivalent of EUR 20-30 million is processed in the following currencies: AUD, CHF, CZK, DKK, GBP, HUF, NZD, PLN, RON, SEK and USD.

REHAU’s netting rule book requires all intercompany invoices to be imported into BELLIN’s system in the invoice currency. To shift the exchange rate risk from the companies to the netting center, all invoices or payables are converted into the customer currency.

The settlement currency is the functional or transaction currency of the beneficiary company, which is normally the currency it uses for invoicing. However, it is also possible to use another currency for settlement.

For example, the REHAU companies based in Singapore and Mexico prefer settlement to be in USD. tm5 offers treasury the choice of which currency to use for settlement, which enables risk management to be centralized: in principle, the FX risk can be transferred to the netting center or deliberately left with the group’s companies. As settlement has also been transferred to the netting center, REHAU decided to centralize the FX risk related to netting, thus easing the burden on the group’s individual companies.

In focus: achieving efficient workflows with BELLIN consulting

The perfect standardized processes don’t just fall from the sky. They are the result of a thorough examination of the specific needs of individual companies and in-depth knowledge of how these can best be supported by the system.

REHAU’s treasury team therefore opted for a joint scoping workshop to obtain a detailed picture of what the company needed and how processes could be standardized optimally across the group.

The scoping workshop represented the first time ever that a group-wide evaluation of the number of intercompany invoices had been carried out. The workshop was also used to analyze the group’s upstream systems, check the system interfaces, determine training requirements, set milestones and identify the people who would be involved in the project.

REHAU runs a shared services center in Poland and a netting subcenter in the USA. Since the accounting processes impact the intercompany reconciliation process, stakeholders from REHAU’s treasury, accounting, IT and HR departments and from the shared services center and the netting subcenter were invited to take part in the scoping workshop.

The comprehensive scoping exercise provided a detailed picture of what the company needed. The BELLIN consultants drew on their extensive treasury and system expertise to demonstrate how to achieve optimal group-wide standardization of processes and how the BELLIN system could be used to maximize automation and fully digitalize processes.  Building on the experience of BELLIN’s consultants, REHAU was able to develop the netting rule book with BELLIN to tackle the complex country-specific netting requirements via the standardized processes and at the same time establish FX management processes and a standardized approach to FX risk management.

 

The project in a nutshell:

The netting processes developed during the project were implemented in BELLIN’s system, enabling REHAU to standardize its group-wide treasury and accounting processes for intercompany business. The group now efficiently reconciles around 60,000 invoices every month at the touch of a button. The project paid for itself in just two months through FX savings alone.

Improved visibility over intercompany cash flows and centralization of currency management enables the treasury team to reduce overall exposure, benefit from significant savings on FX rates and efficiently manage currency risk.

The project achieved:

  • Group-wide netting
  • Standardized processing and reconciliation for all intercompany invoices
  • Netting rule book incorporating country-specific requirements
  • Efficient central currency risk management and improved cash management
  • Centralization of FX exposure
  • ROI within 2 months due to FX savings alone
Key Facts
Industry
Polymer business
Founded, Headquarters
1948, Muri (Bern) | CH
Employees
20.000
Companies
> 170
With BELLIN since
2017
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