What is Intercompany Netting?

Intercompany netting is the offsetting of accounts receivable and accounts payable between two business entities owned by the same parent. This means that payment is only made for the net difference between their receivables and payables, resulting in significantly lower cash flows between the parties.

Intercompany netting is especially useful for international payments, since it identifies situations where a business can hedge the much smaller net amounts of foreign currencies owed between entities, rather than the gross amounts.

Intercompany Netting Software

Intercompany netting is a common feature in treasury software packages. It allows a parent company to combine its subsidiaries into a corporate group, and then convert all inter-company transactions into a single transaction in the parent’s home currency. This net amount is then paid out or received into a central netting center, resulting in lower costs and reduced exposure to foreign exchange risk.