Why is netting important? Permjit Singh Treasury Consultant finds out
The previous post said it is hard enough for a business to making money, without wasting it on unnecessary bank charges so any process that can reduce a company's bank charges is welcome by a corporate treasurer. Payment netting is one such process.
In essence, money paid out of bank accounts held at a company's subsidiaries can be netted off so the number of payments is smaller, or there might be no payment to make on a net basis.
Netting enables a company to reduce its number of payments and so reduce its bank payment charges, which saves money and so increases cashflow and profits.
With a multinational company making tens of thousands of transfers to and from its dozens of subsidiaries across the globe, the savings for a Treasurer from netting those domestic and international cash transfers can run to the £millions per annum.
There will also be a substantial saving of time from the reduced number of payments. Of course, care needs to be taken to comply with tax, accounting, and local rules governing netting of cross-border payments, and transactions should be conducted on commercial terms between subsidiaries.
To discuss Cash or Treasury management for your company, including interim Treasury management, funding, and financial risk management, contact me for a free, confidential chat without obligation.