Intercompany Netting

In bilateral netting each pair of companies settles only the difference between what they owe each other. In multilateral netting each participant settles one net position for the whole group, typically with one payment or one receipt, as the Wikipedia article on netting describes. The obligations must fall due on the same day, so netting runs in cycles on a fixed netting date.

A netting center, usually the group treasury or an in-house bank, collects the intercompany invoices, calculates each company's net position and settles it. If a subsidiary buys from and sells to other group companies in dollars, only the difference is converted, which cuts the number of foreign exchange deals as well as the number of payments.

Netting and cash pooling answer different questions. Netting settles invoices between group companies; cash pooling moves or offsets the balances on their bank accounts. In a group with an in-house bank, the net amounts can be booked on the intercompany accounts the in-house bank keeps for each company, and only payments to outside parties go through the banks. BNP Paribas describes the in-house bank and its intercompany accounts in its summary on payments centralization, and the payment factory page covers how the in-house bank pays on behalf of the group.

Payment transactions within a group are excluded from the license requirement of the Payment Services Supervision Act under section 2 (1) no. 13 ZAG, so a group netting center needs no payment license for its own group.

Netting does not remove the foreign trade reporting duty. Section 67 of the Foreign Trade and Payments Ordinance (in German) requires residents to report payments to and from foreign parties above 50,000 euros, and its paragraph 3 counts set-offs and netting as payments. A German subsidiary whose invoices with a foreign group company are netted must therefore report amounts above the threshold, even if little or no money moves.

Payment channels on a layer 2 blockchain use the same idea: two parties exchange many payments off the chain and settle only the net amount later. Banks also offer corporates money on a ledger. JPMorgan's JPM Coin, now Kinexys Digital Payments, is a dollar token on a permissioned blockchain for vetted institutional clients, corporations among them, and handled about 1 billion dollars a day in October 2023, according to Wikipedia. With tokenized deposits a group can move the net amounts between its companies at any hour, weekends included.

Finance Loop is the meeting place for group treasurers and the bankers and system providers who run netting and in-house banks. It connects the finance, IT and AI communities in Germany, Austria and Switzerland, with events in Frankfurt, Munich, Berlin and Hamburg.

Finance Loop supports When Banks Say 'No', a half-day payments seminar in Frankfurt for compliance, treasury, finance, export and legal teams on blocked payments, de-risking and sanctions. Finance Loop is also media partner of Capital & Code, a Frankfurt conference whose audience includes corporate treasurers who manage liquidity and risk.

Intercompany netting is the offsetting of payables and receivables between companies of one group, so that each company pays or receives only one net amount per netting cycle.

Bilateral netting offsets the claims between two companies. Multilateral netting offsets the claims of all participating companies through a netting center, and each company settles one net position.

Netting settles intercompany invoices. Cash pooling manages the balances on the group's bank accounts by sweeping them or offsetting them for interest.

Yes, if they involve a foreign party and exceed 50,000 euros. The Foreign Trade and Payments Ordinance treats set-off and netting as payments for its reporting duty.