Users of financial netting are, without exception, passionate about the advantages it offers them. Jesse van Sas, Secretary General of FIDI, explains why this is so – and how netting works
Every FIDI Affiliate somehow is involved in regular ‘netting’ of purchase and sales invoices, we just never call it that. However, ‘offsetting’ mutual accounts is actually a way of netting. We all tend to work with the same agents for our origin or destination services, expecting them to return the favour and send some business our way. And as you work with that particular mover regularly, and vice versa, you usually do not pay every single invoice, but keep a kind of open account. In that open account, the debits and credits mount up, until at a certain time you settle any outstanding balance. This is generally called an offset, resulting in one transfer of money, to pay or to receive. The slate is clean, and you start all over again.
This mutual invoice offsetting has many advantages for the two parties involved. Less payment admin to do, less unnecessary cash going around the world, and a binding commitment with your favourite agent. Everybody is happy.
Global netting is, in principle, no different and should therefore not be foreign to anyone. The scale is just considerably larger, because this time the invoice offsetting is carried out between multiple partners around the world. In fact, payment netting is a treasury procedure that consists of grouping multiple cashflows into a single ‘netted’ amount for each participating partner, thus reducing cashflow risks to a minimum.
In simple terms, a mover who is part of the netting group will upload their payable invoices into the system once a month. The netting system will calculate for each participating mover how much they should pay and receive from each mover they have done business with and return one single value for each mover to pay or to receive.
So, instead of doing a series of payments to a list of movers in multiple currencies, and at the same time receiving various amounts, from a number of movers in various currencies, you receive or pay a single amount, in your chosen currency, and, in one go, you settle the entire range of mutual accounts.
This is obviously very beneficial for the participating moving companies and has already been proven by other commercial associations. The number of international bank transactions reduces dramatically, which is a considerable saving of bank fees. The netting entity will also seek out the best foreign currency exchange, and thanks to the volume of money involved, usually obtains much better exchange rates than individual companies can secure.
On top of this, as a participating mover you will know exactly when and how much you will be paid, which will greatly help your cash management. Meanwhile, your company accountant will be freed from a lot of dull admin work on bank transfers and FX management, and can turn his/her attention to the more rewarding task of accounting analytics.
Every user we know who is involved in a group netting system is enthusiastic about the payment tool. Not only in terms of the considerable financial savings, but also for the reduced workload and improved cash management.
Your representatives to the Delegates Meeting and the FIDI Board are jointly looking into this payment tool, and are assessing whether this could be an exciting and beneficial instrument to offer FIDI Affiliates, to streamline administration and processing times for them; give access to competitive exchange rates; reduce time spent on collecting invoices; and simplify the time-consuming process of transferring money to trading partners worldwide.
This is obviously not without risk for FIDI. The newest EU legislation on payment services would put a great deal of the liability on FIDI if it took on the role as a netting entity. FIDI netting would also require commitment from all our Affiliates, with the exception of those in a few countries where offsetting is not permitted by law.
The development and related legal advice would have a considerable cost to your organisation, but the rewards are greater than the investment, with 100 per cent going to Affiliates.
FIDI netting would strengthen FIDI and our membership. It would lessen the risk for our FASI fund and enable FIDI to detect financial concerns at a much earlier stage.
So yes, your Delegates and FIDI Board are in favour of looking into this development , bringing significant benefits for our Affiliates. However, we do need your views on this, and need to know if you would be willing to take advantage of such a netting system. Netting works beautifully, providing we have significant take-up by our membership, including the bigger bookers, of course.
So do please get back to us with your thoughts. FIDI is perfectly willing to invest time and resources in setting up a netting system for the membership if there is the appetite for us to do so. It will be a very beneficial tool, if used by all.
Netting testimonials: FIDI Affiliates give their opinions on the advantages of netting
Mike Keller, Paramount
Transports Systems, USA, says:
‘I am glad to hear that FIDI is considering a netting system – long overdue. PTS has used netting with our trading partners for more than 20 years and it works really well, saving on staff time and bank fees. If FIDI were to offer this service, we would certainly support it as it would enable us to consolidate most of the netting we are currently already doing.’
Miguel Florez, Aviomar, Colombia,
and FIDI Latin America President, says:
‘We cannot leave everything to chance; clearly there is no golden parachute. From my point of view, risk management must be exercised, especially in times of great uncertainty, as we face now; it is clear that the financial protection systems of our industry are a valuable tool, however, not a solution to all. Thus, in our attempt to mitigate risks, it is very important to look for parallel structures that seek to prevent them.
‘You don’t have to be a financial expert to recognise that many companies have used their cash reserves during the pandemic – this will be most evident where there were more extended lockdowns. As they reopen, the big problem will be working capital and the simplest way out will be a deterioration in payment to suppliers – in our case, to agents, making it extremely dangerous.
‘What netting generates is an agreement so that those deadlines, regardless of what they are and how they are set, are met and permit us to schedule our cashflows – which at the moment, along with profitability, are what must be reviewed in detail.
‘It is always good to have complete control of your numbers and finances, yet this system, along with the reduction of bank charges and management of accounts receivables and payables, will make the process more reliable for everyone; it must be sustainable so that we are allowed to focus on core areas of our business.’
Susie Bäer Freifrau Von Verschuer, Fermont, Germany,
and FIDI Germany President, says:
‘Based on current uncertainties, which particularly affect our industry as a result of the pandemic and which can also impose unforeseen difficulties for the FASI fund, the Board and the members of FIDI Germany have held intense discussions about solutions for the future.
‘Private insurance that covers the payments of companies of different sized and structured business partners, based in different countries all over the word, would not be practical, as the premiums to be paid would be exorbitantly high.
‘A netting system, which is mandatory for all payments between all FIDI Affiliates, would, however, be helpful to ensure that payments are processed in a timely manner. Such a system would be suitable for avoiding overdue payments between Affiliates, so that protection through insurance or the FASI system would no longer be necessary – at least not to the same extent as before. In addition, the transaction costs for international money transfers would be minimised, since individual payments would no longer have to be made, only
one payment per Affiliate for each accounting period.
‘The introduction of a netting system requires a high level of trust in the functionality of the system. In addition, the highly confidential nature of Affiliates’ data must be taken into account. Therefore, a reliable external partner is required who can meet these demands.’
Jerry Nazzal, Express International,
Egypt, and FIDI MENA President, says:
‘In my opinion, netting is the natural way to do business for FIDI Affiliates. Netting not only saves everyone money with transfers, it organises and helps arranges a company’s cashflow. Knowing exactly what is coming in or going out in a timely manner allows for proper planning and is simply more professional for everyone involved in the process. We have been using the system – through another network – for some time now and have come to appreciate the ease with which the system works. Communication for my finance team has also become more efficient as we don’t need to run around with tens of emails that often get lost, forgotten or misplaced.
‘Given the high quality of the FIDI membership, incorporating the netting system is a no-brainer; it only adds value. Its success, however, obviously needs everyone to commit for it to work properly.’
René van Valen, Van der Ent Group,
the Netherlands, and FSC Chair, says:
‘As a Harmony member, we use the Harmony netting system. Judging by the big smile on our financial manager’s face when we talk about the use of this netting system, I can safely say it has been excellent for our company.
‘Netting is a money and time saver for sure: there are fewer bank charges, lower currency losses and less time spent on following up with debtors.’