An internationally active Swiss engineering group with an annual turnover of around one billion Swiss francs commissioned the interim manager with the introduction of group-wide multilateral netting. The mandate also included the development of an efficient treasury framework and the creation of a group-wide treasury policy. The background to the mandate was the complexity and inefficiency of internal payment transactions: the group generated a good thousand internal invoices every month. This led to high costs, excessive transaction costs and risks in the area of payments and foreign exchange. The aim of the mandate was to create transparency, free up resources and achieve significant cost reductions by strategically restructuring the treasury processes.
Client follows recommendation for a multilateral netting system
In the analysis of the existing treasury landscape, the interim manager recorded processes, IT systems, bank details and balance sheet items of the 29 subsidiaries. This inventory was used to define the appropriate strategic direction for the project, particularly in comparison to alternatives such as cross-border cash pooling or an in-house bank. On the recommendation of the interim manager, the steering committee, headed by the Group CFO, decided to introduce a multilateral netting system in order to significantly reduce payment transaction costs and processing time, release frozen liquidity, reduce balance sheet totals and minimize foreign currency risks.
Preliminary project confirms profitability and feasibility of the netting approach
In order to check the viability and profitability of the planned measures, the interim manager set up a preliminary project lasting two and a half months. It included detailed risk analyses, business cases and a segmentation of the national companies according to regulatory and operational criteria. Four categories were formed: from fully netting-capable companies to intermediate stages and countries with regulatory hurdles. This resulted in two project phases: an immediate implementation with "low hanging fruit" and a later expansion for more demanding markets.
The results of the preliminary project were convincing: the expected return on investment was more than 200%. This meant that the project costs would be amortized within six months. Building on this, the interim manager developed the roadmap for implementation.
Implementation steps and system setup
A central component was the configuration (parameterization) of the treasury management system "Coupa" for netting processing. The treasury system was already in place, but the netting module had not yet been used. In order to be able to use the module, the interim manager fed all relevant data into the tool. This primarily included currencies, main bank details, payment methods, the netting calendar and intercompany netting relationships. He then set up two netting variants: full netting with physical payment processing and virtual netting. Virtual netting for purely mathematical settlements without final payment was necessary in order to meet regulatory requirements.
In parallel, the interim manager defined workstreams for IT, compliance, accounting, training and testing. Extensive testing in a dedicated environment helped to identify and rectify process errors. At the same time, the interim manager created a central control instrument that standardized processes and involved all stakeholders.
Detailed netting work instructions developed according to corporate standards
The reorganization of the treasury processes affected a good 100 employees in three time zones. To ensure the successful introduction of the new system, the interim manager initiated group and individual training sessions in the 29 subsidiaries. He also drew up detailed netting work instructions in accordance with corporate standards, which are now an integral part of treasury governance.
The treasury expert paid particular attention to taking individual issues and special features of the national companies into account, especially for markets such as China, India and Brazil, where regulatory restrictions required special measures.
Supplementary measures: Establishing standards and guidelines
In the course of the project, the interim manager also fundamentally revised the Group's treasury policy. Based on ISDA standards, he introduced a group-wide financial framework agreement that governs the group's internal financial relationships. This agreement forms the basis for future expansions such as cash pooling or intra-group lending.
A central inventory of all existing banking relationships led to significantly better transparency, a reduction in the number of banking partners and improved conditions through targeted consolidation. The new treasury policy was implemented successively, starting with the regulations on netting.
Client rates the introduction of multilateral netting as a complete success
After eight months, the interim manager successfully completed the mandate. The introduction of multilateral netting resulted in annual cost savings in the high six-figure range. At the same time, the cost of internal invoice processing was reduced by 70 percent. The client also benefits from a greatly reduced foreign exchange risk thanks to a consolidated FX requirement and a significant improvement in the equity ratio due to a reduction in the balance sheet.
The mandate also helped to improve payment discipline within the Group. Years of outstanding receivables were settled, the balance sheet total of many subsidiaries was significantly reduced and liquidity was centralized. Group subsidiaries that were not sufficiently liquid received short-term internal loans from Group headquarters in accordance with the new treasury policy.
The new netting reduced the number of payments in the Group by more than 90 percent. Within a month, the interim manager cleared a backlog of several thousand invoices and consolidated them into a dozen net invoices. Thousands of future individual transactions can then be summarized in less than a hundred payments per year.
The client considers the introduction of multilateral netting to be a complete success, both economically and organizationally. The project laid the foundation for a sustainable professionalization of the group-wide treasury management. The consistent use of the existing treasury system, the creation of a central set of rules and the harmonization of all bank-related data and processes strengthen the company's financial management in the long term. This not only achieved the project objective, but also created a sustainable basis for future treasury initiatives.
