As part of the Zanders Treasury Technology Support agreement, Inmarsat asked Zanders to define and implement a solution that would reduce the accumulation of multiple intra-group receivables/liabilities from the cash concentration and instead reflect these movements in the company`s internal bank accounts. A second problem may arise if too much time passes between the first receipt of funds and payment to the SupplierSub beneficiary via the clearing system. For more information on the different ways to conduct multilateral offsets, please click here. Also known as a payment balance, the settlement balance aggregates the amount due between the parties and offsets the cash flows of a payment. In other words, only the net difference between the total amounts is delivered or exchanged by the party with the net obligation due. As a general rule, a payment compensation agreement must be in place prior to the settlement date. Otherwise, each of the individual payments to and from all parties involved would be due. Clearing also brings much better control over the company`s internal payment process, and therefore the problem of the volume of payments and the time in which they are processed is centralized and better managed with increased transparency. In addition, clearing systems can be used to manage other types of intra-group transactions, including intra-group loans, interest, etc. If you would like to learn more about optimizing internal banking structures or business-to-business clearing, please contact Warren Epstein.

In the current configuration, credit/debit balances are built on multiple intercompany liabilities/accounts receivable with the same unit that reflect different business transactions (intercompany invoicing, cash concentration, POBO payments, intercompany invoicing). This makes intra-group coordination more difficult and financing needs between companies are less transparent. As mentioned earlier, clearing reduces the volume of payments that need to be processed because intercompany flows are cleared at some point, and then the cost of external payments decreases significantly. In addition, cash held locally in a decentralized structure will often attract lower interest rates and will therefore be invested less optimally than what is approached on a group basis. Centralised clearing allows for better collective bargaining. Let`s say we are a British company based in pounds sterling. Let`s say we`re supposed to pay €800,000 and at the same time we owe €785,000. Without compensation, the total amount of all gross payments and income would be: €800,000 + €785,000 = €1,585,000 This can lead to problems with interest distribution and withholding tax between Group companies. Therefore, groups that use these techniques tend to net more frequently despite the additional cost. The following diagrams illustrate the differences between a company that does not perform clearing and a company that performs compensation.

Compensation is one of those concepts whose outcome can be measured and therefore justified. It`s easy to point out the savings that a good net system can offer. However, the reason why large organizations and companies use compensation goes beyond measurable savings. When a third party (“Customer C”) deposits the money it owes to a subsidiary (“SupplierSub”) into a group`s multilateral clearing system, the payment is made to a bank account owned by one of the following: Large multinationals have subsidiaries and franchises worldwide. When developing a global business strategy, these branches of the same company regularly do business with each other and must bill each other in order to record transactions. This can become complex and confusing, especially if each franchise or subsidiary uses the local currency. Intercompany clearing is designed to centralize and coordinate these inter-company financial relationships. I was recently invited by Anne-Marie Rice, Market Strategist at Analyst, a leading provider of cloud cash management solutions, to attend a short webinar (20 minutes) to discuss the benefits of business-to-business clearing. Here are some of the interesting talking points and actionable outcomes for treasurers and CFOs who are considering centralizing financial relationships between subsidiaries. Closing set-off occurs after late payment if one of the parties does not make principal and interest payments. Transactions between the two parties are cleared in such a way that they result in a single amount that one party can pay to the other.

As part of the closing compensation, existing contracts are terminated and an aggregate final value is calculated and paid as a lump sum. Clearing is often used in trading, where an investor can clear a position in one security or currency against another position either in the same security or in another security. The purpose of compensation is to offset losses in one position with profits in another. For example, if an investor shorts 40 shares of one security and 100 shares of the same security, the net position is 60 shares. Unfortunately, a very small percentage of IHC`s intercompany entries were automatically matched with open customer invoices (14% as of May 2020). .