Honeywell’s corporate treasury calculated that the company issues almost 4,000 inter-company invoices with approximate gross values of $800m monthly. Such inter-company trade volume required thousands of fund transfers amongst the business units.

The objectives of implementing a global, multilateral netting programme were therefore as follows:

• To reduce the number of inter-company trade settlements between Honeywell business units by offsetting payables with receivables via a netting process.

• To outsource the netting process and settlements to a third party (netting centre).

• To reduce the overall cost of settling inter-company invoices, including manpower to effect the payments, the related bank fees and the FX costs.

• To simplify the reconciliation of inter-company invoices through consolidation of information so as to reduce the time required to close the accounting cycle.

• To avoid or minimise potential tax costs arising from third party inter-company settlements.

• To maintain compliance with foreign exchange controls in certain countries that regulate netting of cross border trades.

Multilateral netting is simply the process of centralising the settlement of inter-company payments and receipts into one netting centre. It allows each business unit to pay or receive only one net amount on a pre-determined settlement date. Before using the netting centre, Honeywell had to make multiple wire transfers and currency conversions each month, which were sometimes difficult to reconcile.

As at December 2009, the outsourced netting programme with Bank Mendes Gans (BMG) processed on average over 3,500 invoices per month. Honeywell has effectively outsourced the settlement of 88% of its inter-company invoices with this solution. As a result, Honeywell was able to drastically reduce the number of fund transfers amongst the business units by 89%. The direct benefit of such reductions was similarly drastic reduction in fund transfer fees that Honeywell has to pay its banks.

“This outsourcing programme brought massive credibility to treasury within the company as a whole. Outsourcing the netting process was simply one of the best investments made by Honeywell treasury.”

Honeywell has also been able to free up considerable resources, which were previously deployed on processing inter-company trade settlements. More significantly, treasury was able to reduce the gross foreign exchange trades required to settle the inter-company invoices by 90% globally, directly saving the company in foreign exchange costs.

The decision to outsource netting saved treasury from incurring discretionary capital spending on systems and operational expense on taxation and legal advice. Overall, investments in a netting system represented an ROI of over 1100%.

As Panji Winanteya Ruky, Senior Treasury Manager, Honeywell, concludes, “Outsourcing the netting process to BMG was so successful that treasury decided to make netting of inter-company invoices a part of its core cash management policies. Inter-company netting was made mandatory for all Honeywell business units and the overall finance organisation fully supported the move. The millions of annual savings treasury generated to the company were above and beyond senior management’s expectations. As such, this outsourcing programme brought massive credibility to treasury within the company as a whole. Outsourcing the netting process was simply one of the best investments made by Honeywell treasury.”