Introduction

As much as 70% [1] of global trade involves intercompany transactions, and many large corporates process tens of millions in internal flows each month. But settling intercompany invoices across different currencies, legal entities, and accounting systems can drive up costs and complexity.

This paper explores how multilateral and multi-currency netting can transform internal payments into a source of efficiency. Through coordinated netting cycles and targeted technology, companies can reduce intercompany payments by up to 90%, cut operational friction, and strengthen central control – often without full-scale integration projects.

You’ll discover:

• What multilateral, multi-currency netting is and how it compares to bilateral alternatives
• The financial and operational upside
• How to implement netting in phases
• Legal, tax, and regulatory points to consider
• KPIs for measuring long-term impact

And at a time when treasury teams face rising FX volatility and leaner headcounts, netting provides a way to streamline internal flows and unlock smarter liquidity management.

Netting Structures: Characteristics and Considerations

Intercompany netting is a structured process that consolidates payment obligations between group entities into a single net amount per participant. Instead of settling hundreds of invoices individually, each subsidiary submits its payables and receivables into a central netting cycle. The system calculates the net position for each entity, so only one payment per participant is made.

There are various different netting models in practice. Multilateral and multi-currency netting are often used in combination. Single-currency netting also exists.

 

Table: Comparing netting structures

Type	How it works	Best for	Limitations
Bilateral Netting	Two entities offset mutual invoices and settle the net difference	Small groups with limited entities	Can become unmanageable if entity count grows
Multilateral Netting	All entities submit transactions to a central hub or netting centre. Each settles one net position	Medium to large groups seeking standardisation	Requires central governance and data readiness
Multi-currency Netting	Invoices submitted in local currency. Central FX rates convert to base currency before netting	Global groups with diverse currency flows	Requires strong FX policy and rate publication process

 

Bilateral Netting

This model is often used as a starting point, especially for smaller groups. It allows two subsidiaries to net their payables and receivables and settle only the net balance between them.

For example:

• Entity A owes Entity B €500,000
• Entity B owes Entity A €300,000
• With netting, only the €200,000 difference is paid from A to B

It is important to note, though, that bilateral netting has clear limits. With every additional entity, the number of relationships grows, placing an increasing burden on treasury and local finance teams.

 

Multi-lateral Netting

As the name suggests, multilateral netting removes the complexity of bilateral netting by introducing a centralised approach. Instead of each entity dealing directly with every other entity, all intercompany invoices are submitted to a central hub or netting centre – typically controlled by treasury or a shared service centre (SSC).

The netting engine (software used by the netting centre) then consolidates all payables and receivables, then calculates a single net payable or receivable for each entity. This transforms dozens or hundreds of gross payments into just one per participant.

Beyond operational simplicity, multilateral netting also introduces standardised FX treatment, scheduled settlement cycles, and improved control over internal funding flows.

 

Multi-currency Netting

For groups operating in multiple jurisdictions, multi-currency netting adds an essential layer of financial control.

The process involves:

1. Collecting all intercompany invoices in their original currencies (local functional currency of each entity)

2. Converting all amounts to a common base currency using predetermined FX rates

3. Calculating the net position for each entity in the base currency

4. Converting the final net amount back to the desired settlement currency (where necessary)

Multi-currency netting requires a clear FX governance model and a platform capable of handling complex rate matrices and dual-currency views.

 

How Netting Works in Practice: Steps and Controls

While the concept of netting is relatively straightforward, executing it effectively across a complex organisation requires a solid strategy.

Most organisations run their netting cycle on a monthly or biweekly basis, with a clearly defined schedule communicated in advance to participating entities. Each cycle typically follows a repeatable set of steps:

 

1. Invoice preparation and eligibility

Before each cycle, local finance teams record intercompany invoices in their ERP or accounting systems. Invoices intended for netting are tagged as ‘netting eligible’ ensuring only approved and relevant transactions are included in the process.

N.B. Intercompany flows can include everything from trade payables and receivables to royalties, loans, and intra-group financing. Not all of these transactions are appropriate for netting – especially where legal, tax, or transfer pricing considerations apply.

 

2. Data submission

Participating entities upload their approved intercompany payables and receivables into the central netting platform. Depending on the group’s level of integration, data may be submitted via API, structured file transfer (e.g. CSV, XML), or manual entry. Cut-off times and submission windows are clearly defined in advance.

 

3. Transaction matching and validation

The netting platform automatically matches transactions between counterparties. Any discrepancies – such as mismatched amounts, missing invoice references, or incorrect currencies – are flagged for review. Built-in workflows enable local teams to resolve issues directly within the system, while unresolved disputes can be escalated to group treasury.

4. FX rate publication

In a multi-currency environment, group treasury publishes the FX rates to be used for the netting cycle. These may be based on daily closing rates, forward curves, or pre-agreed internal rates. Once published, all non-base currency transactions are converted into the group’s designated base currency for netting purposes.

5. Net position calculation

Once all data has been validated and converted, the system calculates a single net payable or receivable for each entity. These positions reflect the entity’s aggregate balance across all counterparties. Treasury and local finance teams review the results before proceeding to settlement.

6. Netting statement distribution

Each participant receives a detailed netting statement, outlining:

• All underlying transactions
• Gross payables and receivables
• Applied FX rates
• Final net settlement amount

These statements form part of the approval and audit trail.

7. Approval and settlement

Entities review their netting statements and approve their positions. Treasury then issues payment instructions:

• Internally, via an in-house bank or intercompany accounts
• Externally, through SWIFT or host-to-host bank connections

All payments are routed through a central settlement account, significantly reducing transaction volumes and easing group-wide liquidity management.

8. Accounting and reconciliation

Once funds are transferred, the system generates accounting entries that can be automatically posted back into each entity’s ERP. Because each participant settles only one transaction, reconciliation is faster and more accurate – with minimal manual effort required.

9. Reporting and performance analysis

After the cycle is complete, the netting centre generates reports highlighting the operational and financial impact of the process. Common KPIs (covered in more detail later in this report) include:

• Reduction in payment volumes
• FX savings
• Number of discrepancies resolved
• Settlement cycle time

Throughout the process, controls are key. Approval workflows, audit logs, segregation of duties, and automated exception handling ensure that netting remains compliant, transparent, and low-risk.

The Business Case for Netting: Operational and Financial Benefits

Intercompany netting earns its place in the treasury toolkit because it delivers measurable financial and operational benefits.

 

Operational Benefits	Details
Streamlined processes	• Standardised procedures across entities • Reduced manual effort in processing and reconciliation
Greater visibility	• Centralised view of all intercompany positions • Enhanced reporting and decision support
Stronger compliance and control	• Structured settlement process aligned with internal policies • Full audit trail improves compliance posture
Simplified reconciliation	• Faster month-end close • Fewer manual adjustments and higher accounting accuracy

 

Financial Benefits	Details
Lower transaction costs	• Fewer cross-border payments reduce bank fees and administrative overhead • Netting can cut payment volumes by 70–90% (industry benchmark)
FX savings	• Consolidated conversions secure better FX rates and tighter spreads • Reduces exposure to currency fluctuations and improves timing control
Improved working capital	• Predictable settlement cycles enhance cash flow forecasting • Eliminates timing mismatches between payables and receivables
Liquidity optimisation	• Better visibility into net funding needs across the group • Supports more centralised and strategic cash management
Reduced bank charges	• Fewer wire transfers and lower transaction volumes cut overall banking costs significantly

The value of netting also goes beyond efficiencies. In addition, it lays the foundation for deeper financial centralisation, enabling treasury to evolve toward in-house banking, shared service centres (if not already in place), and more dynamic liquidity structures.

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Case in point

A project involving a European industrial group with 18 subsidiaries across 13 countries, the introduction of multilateral netting reduced internal payment volume by 93%, cutting more than 1,300 annual transactions down to fewer than 100. The group also reported faster month-end close, improved auditability, and increased FX control across the board[2].

Implementation Roadmap: How to Get Underway with Netting

Implementing intercompany netting successfully requires alignment across teams, careful sequencing, and a clear set of design decisions that shape how the process functions day to day. From organisational readiness and entity participation to FX rate policy and system integration, the quality of the upfront thinking determines how well the solution performs over time.

Organisational readiness considerations

1. Treasury structure

A company’s treasury operating model sets the stage for how netting will be implemented and governed. In centralised models, policy setting, system ownership, and FX rate control are typically managed at group level, enabling a more uniform rollout across geographies. This also supports standardised cut-off times, coordinated settlement cycles, and consistent data requirements.

By contrast, decentralised treasury models often rely on local autonomy, requiring more flexible processes and extensive change management. In these cases, clear documentation, local training, and a well-articulated business case are essential to drive adoption and avoid misalignment.

The degree of process standardisation across the group also plays a key role. Where invoice formats, payment terms, and ERP configurations are already harmonised, netting becomes significantly easier to implement. Where those elements vary, additional data mapping and reconciliation processes may be needed during rollout.

2. Entity participation

One of the first strategic questions is how widely netting will be deployed – and which entities should be included. Some companies choose a phased rollout, starting with high-volume, FX-heavy, or system-ready entities before expanding across the group. Others adopt a mandatory participation model, requiring all in-scope entities to engage from the outset.

Establishing clear inclusion criteria helps prioritise efforts. Common filters include:

• Minimum intercompany transaction volume
• Readiness of ERP systems or data quality
• Geographic considerations, such as FX controls or bank regulations

Pilot cycles with a manageable number of entities are often the best way to surface operational friction points before committing to group-wide deployment.

3. Technology infrastructure

Assessing your systems landscape upfront is essential. Where treasury management systems (TMS), ERP environments, or middleware solutions are already integrated, the path to automation is faster. Where systems are fragmented, file-based workflows may be the best starting point. What matters most is a clear sense of what's possible now – and how the solution can scale.

 

Key design decisions

1. Netting frequency

The frequency of netting cycles affects both treasury control and operational workload. Most corporates begin with monthly cycles, offering a good balance between efficiency and administrative effort. As maturity increases, many move to bi-weekly or weekly cycles to further reduce open items and improve cash visibility.

Cycle timing should align with month-end processes and avoid overlap with other major treasury activities, such as payment runs or forecast updates.

2. Base currency selection

Selecting the right base currency shapes how FX risk is centralised and accounted for. Most companies use the functional currency of the parent company, which simplifies consolidation and group-level reporting.

However, for globally active groups with large volumes in USD or EUR, those currencies may serve better as a neutral base for netting. The final choice should reflect both transaction flows and reporting needs, with clear rationale documented to support audit and accounting requirements.

3. FX rate methodology

Establishing a clear, transparent FX rate policy is critical to avoid disputes and ensure confidence in the netting process. Key elements include:

• Rate source: Will rates be published by the treasury team, pulled from the market, or sourced from banking partners?
• Publication timing: Are rates fixed daily, weekly, or at a defined point before each cycle?
• Application logic: How are gains and losses allocated? Centrally at treasury level, or passed back to entities?

Treasury should also define how often rates are reviewed, and whether internal hedging is used to support the programme.

4. Settlement mechanisms

Once net positions are agreed, treasury must define how funds are moved and booked. Two broad models exist:

• In-house bank: Central treasury collects and redistributes cash internally, often through virtual accounts or internal ledger postings. This allows for net settlements without triggering external cash movements and supports stronger liquidity pooling.

• External bank partners: If an in-house bank structure is not in place, entities settle externally via SWIFT, host-to-host (H2H), or local clearing systems.

In either case, the payment channels, cut-off times, approval workflows, and reconciliation rules should be documented and embedded into the TMS or netting platform.

 

Netting tech selection

Behind every successful netting programme is a system that can support the operational complexity and governance requirements. Areas to consider:

1. Specialised netting software

Technology options generally fall into two categories:

Model	TMS-embedded module	Standalone netting platform
Strengths	Leverages existing data, reduces vendor sprawl	Purpose-built, flexible, easier to deploy in mixed ERP environments
Limitations	May require customisation to handle multilateral or multi-currency cycles	May need additional integration effort
Best For	Treasury-led centralised models with mature systems	Decentralised groups or first-time netting adopters

 

Whichever option is chosen, the system should ideally support:

• Multilateral netting across multiple currencies
• Role-based access and workflow approvals
• Automated reporting and audit documentation

 

2. ERP integration

Netting depends on structured data, which typically lives in the ERP. Whether companies run a single global ERP or multiple local systems, the ability to extract, match, and post intercompany positions is critical.

At a minimum, the ERP must support:

• Extraction of open AP/AR balances with invoice-level detail
• Matching of intercompany payables and receivables
• Identification of disputes and mismatches
• Accurate posting of netting results back to the ledger

Integration can be as simple as flat-file uploads or as advanced as real-time APIs. Many start with basic file transfers, then build automation over time.

Crucially, data consistency matters. Standardising customer/vendor codes, invoice formats, and account mappings across entities reduces manual work and improves netting cycle accuracy.

3. Banking connectivity

Once netting results are calculated, treasury must ensure funds are moved – or ledgered – smoothly. This means:

• SWIFT MT/MX messaging for secure, standardised global instructions
• Host-to-host (H2H) connections with key banks for status updates and confirmations
• Real-time tracking to monitor flow of funds and ensure liquidity visibility

Where payment factories or virtual account structures exist, netting should integrate into these seamlessly.

 

Netting implementation phases

Phase	Key Activities	Typical Duration
1. Scoping and Feasibility	Identify participating entities, currencies, and transaction volumes. Assess ERP capabilities and existing intercompany pain points.	2-4 weeks
2. Policy and Governance Design	Define rules for FX conversion, approval workflows, rate setting, and dispute resolution. Establish accountability for data submission.	4-6 weeks
3. Data Preparation	Cleanse and map master data across entities (counterparty codes, invoice formats, currency rules). Align timing conventions.	4-8 weeks
4. Platform Configuration	Configure the netting engine to reflect policies, upload methods (API, file, manual), FX rate logic, and approval paths.	3-6 weeks
5. Pilot Cycle	Run a controlled netting cycle with 3-5 entities. Validate outputs, reconcile results, and surface any local issues.	2-3 weeks
6. Rollout and Expansion	Scale to remaining entities, with support for training, onboarding, and local adjustment. Introduce multi-currency where relevant.	4-12 weeks

 

Regulatory and Tax Considerations: Netting Legalities

While many countries support or tolerate netting, specific local rules can affect how it’s implemented. Identifying and mitigating these risks early in the design phase is crucial. As such, professional advice (either internal or external) should be sought, but points to consider include:

• Foreign exchange controls
  Jurisdictions such as China, Brazil, and India may limit or delay cross-border payments, impose filing requirements with central banks, or constrain the timing of FX conversions. Some countries require regulatory pre-approval for netting or prohibit it entirely.

• Banking regulations and compliance obligations
  Depending on the settlement model, banks may request refreshed KYC documentation or conduct AML checks, especially when new counterparty flows are introduced. In some jurisdictions, netting settlements must be reported to central banks or local authorities, even when conducted internally. Treasury must ensure that netting does not obscure payment-level data where regulatory filings are required.

• Transfer pricing
  Netting can lead to settlement amounts that differ from original invoice values. Without proper alignment to the arm’s length principle, this may raise concerns with tax authorities. Policies must be designed to preserve auditability and demonstrate fairness.

• Withholding tax
  Even where intercompany invoices are offset through netting, withholding tax obligations may still apply. If the underlying transactions are not individually settled or documented, local authorities may challenge whether tax has been appropriately applied.

• Legal enforceability
  In some jurisdictions, netting agreements may not be recognised in insolvency proceedings. This limits enforceability and introduces counterparty risk. Legal review is essential to assess the enforceability of netting contracts under local law.

• Documentation and audit trail
  A lack of consistent documentation for intercompany agreements, FX rates, or transaction-level detail can attract scrutiny during tax audits. Transparency is key, particularly when netting alters the traditional visibility of payment flows.

 

Mitigation strategies

To manage these risks proactively, treasury teams should ideally:

• Engage tax and legal experts early
  Input early on helps identify deal-breakers, address local requirements, and avoid design changes mid-rollout.

• Use formal intercompany netting agreements
  These should clearly define participation, settlement terms, dispute handling, and FX methodology – aligned with OECD guidance and local regulatory expectations.

• Publish and retain FX rate policies
  Internal rate bulletins, gain/loss allocations, and the timing of conversions should be documented and available for audit.

• Allow regional flexibility where needed
  Some corporates enable subsidiaries in tightly regulated countries to opt out or use alternative settlement methods.

• Monitor changes in regulation
  FX rules, tax policy, and banking restrictions can shift rapidly, particularly in emerging markets. Annual reviews and local engagement are essential for ongoing compliance.

 

Measuring Netting Success: Meaningful KPIs

Success isn’t just about a working cycle, it’s about delivering quantifiable improvements in payment efficiency, FX management, and internal transparency.

Rather than measuring everything, the most effective KPIs are those that connect netting performance to broader treasury and finance goals. These typically fall into four categories:

1. Operational efficiency

• Reduction in intercompany payments
  This is the most visible early win. Industry norms suggest that corporates typically see a 70–90% reduction in internal payment volume once netting is implemented. Tracking this by region, currency, and entity helps measure adoption and scale.

• Cycle time and adherence
  Monitoring the duration of each netting cycle – from data submission to final settlement – helps identify process bottlenecks. On-time submission rates and exception volumes also provide insight into process maturity.

• Entity participation
  The percentage of eligible subsidiaries actively participating in each cycle is a useful barometer of organisational engagement and trust in the process.

 

2. Financial impact

• FX cost savings
  Fewer conversions and improved rates from group-level execution often translate into measurable savings. Treasury can compare pre- and post-implementation spreads or model savings from internalised conversions via an in-house bank.

• Payment processing costs
  Netting reduces the number of cross-border wires and urgent payments – both of which carry high fees. Tracking fee reductions by region or bank account highlights direct cost impact.

• Working capital metrics
  A smoother intercompany settlement process can improve cash flow predictability and reduce Days Sales Outstanding (DSO) and Days Payable Outstanding (DPO) across netting entities.

3. Control and reconciliation gains

• Faster month-end close
  By reducing the number of open transactions and aligning approvals in advance, netting can accelerate reconciliation and close processes—often by two to three days.

• Dispute resolution speed
  Tracking how quickly mismatches are flagged and resolved provides insight into local engagement and helps drive standardisation.

• Audit exceptions
  A fall in audit findings related to intercompany balances or documentation suggests a stronger control environment and clearer process ownership.

4. Strategic integration

• Automation and data integration
  The percentage of transactions flowing directly from ERP into the netting platform (rather than via manual uploads) reflects system maturity and automation progress.

• Expansion of programme scope
  Moving from bilateral to multilateral netting, adding new currencies, or integrating an in-house bank structure can all be treated as milestones on the maturity roadmap.

• Forecast accuracy
  More predictable internal flows can improve short-term cash flow forecasting and support smarter liquidity planning across the group.

 

Example KPIs for netting

KPI	Target / outcome (illustrative)
Internal payment reduction	>70% within 3 months of rollout
Entity participation	80%+ of eligible subsidiaries within 12 months
FX spread savings	>15bps per USD-equivalent trade
Reconciliation time improvement	2–3 days faster month-end close
Netting cycle duration	<5 business days end-to-end
DSO/DPO shift (netting group)	±2–5 days improvement over first year
Submission on-time rate	>95% by cut-off deadline
Forecasting variance improvement	≥10% reduction in short-term liquidity variance

 

 

Future Netting Trends: From Automation to Intelligence

While the core principles of intercompany netting remain unchanged, the way it’s executed shifts as technology evolves. Strategic developments to watch include:

Blockchain and distributed ledger technology (DLT)

Early-stage pilots using blockchain for intercompany settlement show promise – particularly in enabling real-time visibility and immutable audit trails across entities. While scalability remains a hurdle, DLT could reduce reconciliation effort, provide shared data access, and ensure a single version of truth for all parties.

Artificial intelligence and machine learning

AI is starting to play a role in areas like transaction matching, anomaly detection, and dispute resolution. Machine learning models can flag likely mismatches before cycle cut-off, identify recurring errors in AP/AR workflows, and help predict cash flow shortfalls based on historical netting behaviour.

API-based integration

APIs are rapidly replacing batch uploads and file-based interfaces. With real-time connectivity between ERP, TMS, and bank platforms, treasury teams can achieve greater transparency, faster updates, and more agile netting cycles. This shift also lays the foundation for future enhancements like real-time settlement or dynamic liquidity forecasting.

External party netting

Some forward-thinking corporates are exploring ways to extend netting to key trading partners – particularly frequent counterparties such as strategic suppliers or distribution partners. While this model introduces legal and tax complexity, the potential benefits in reduced FX costs, faster settlement, and stronger cash management are compelling.

On-demand and event-triggered netting

Traditional monthly or bi-weekly cycles may soon give way to more flexible, on-demand netting. Enabled by real-time data and integrated workflows, this approach allows treasury to initiate settlement events based on risk thresholds, liquidity needs, or group-level exposures – bringing intercompany processes closer to true real-time treasury.

Looking ahead, netting will likely become less about running a regular cycle and more about embedding efficient, data-led decision-making into the core of treasury operations. The combination of AI, APIs, and integrated platforms will also continue to push intercompany netting towards a future that is always-on and increasingly strategic.

 

Conclusion: Beyond Efficiency

Multilateral and multi-currency netting offers a compelling route for multinational companies to enhance the way they manage internal settlements. By cutting transaction volumes, reducing FX exposures, and improving process efficiency, netting unlocks both financial gains and operational clarity, strengthening treasury’s role as a strategic partner to the business.

Salmon’s netting solution is purpose-built to support this shift. Designed for evolving organisations, it brings together powerful functionality and a user-friendly interface to support everything from simple pilots to large-scale, multi-entity deployments. The platform flexes to match each group’s structure – without overengineering the process.

Effective rollout depends on smart design choices, the right technology foundation, and ongoing governance. Salmon works closely with treasury teams to ensure netting programmes are not only well-implemented, but built to scale, with clear visibility, auditability, and control baked in.

As treasury tech continues to advance, Salmon remains focused on helping clients stay ahead – through deeper automation, easier ERP integration, and continuous improvements that support smarter liquidity and risk management. By rethinking intercompany settlement with the right tools and structure, corporates can move beyond inefficiency and turn netting into a source of long-term value.

To learn more or schedule a tailored walkthrough of the netting module, get in touch info@salmonsoftware.ie or visit www.salmonsoftware.com