A company`s treasury department can use a clearing system to monitor and verify the organization`s cash management. Thanks to the implementation of a clearing process for invoice management, cash ensures less cash in transit, which obviously makes accounting a simpler task. And because there are fewer transactions involved in the clearing process, cash spends less time between beneficiaries and payers. Companies must submit their commitments to the clearing centre, which will then be cross-checked. Of course, just because it`s allowed doesn`t mean it`s easy – or even profitable for all businesses – but it`s always doable for a dedicated treasurer. For example, several clients have offices in Russia and Ukraine that have implemented compensation. Typically, China is considered a lost cause of nets. However, I had a treasurer who told me quite proudly that he had worked through the bureaucracy (often via a detour to Hong Kong), and his Chinese office was now fully integrated. In recent years, almost 1/4 of our clients with Chinese offices have managed to implement compensation.
With the many digital AP management tools available on the market today, busy offices shouldn`t have to spend hundreds, if not thousands, of bills a month. A compensation system makes processing large amounts of intercompany commitments faster and easier, leading to more efficient AP divisions. To remedy this, there are two ways a business can encounter: either you bite the acidic apple at the billing currency, or implement compensation. Not only will it keep the existing accounting procedures intact, but it will also avoid the loss of money related to excessive exchange rates in the use of external exchanges. In addition, FX risk can be transferred from subsidiaries to the parent company, which is generally better able to manage the associated FX risk. It is not uncommon for the Netting Center to control the entire FX risk of the group from the outset. More details about FX Risk below. Planning and monitoring the clearing system will be a task for the accounting and treasury division to determine approval processes and billing procedures and perform routine functions. The technical implementation is carried out by the IT department. Finally, the human resources department implements the consequences on the basis of the predefined protocol. AP offices, overloaded with paperwork, will find that digital payment of invoices at the end of the month in batch transactions leads to more efficiency and fewer errors.
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