BELLIN and Logwin: Multi-Faceted Success with Multilateral Netting
by Andreas Schwarz, Director Group Treasury, Logwin
This BELLIN success story, written in conjunction with Andreas Schwarz, Director Group Treasury, takes us “into the field:” how does Logwin AG, a global logistics company, use BELLIN’s multilateral netting solution to settle both internal and external receivables and payables in an intelligent and efficient way, then dives into the productivity and profit values they have experienced.
Best practice: Netting at Logwin
As a global logistics company, Logwin provides comprehensive services worldwide. 68 subsidiaries operating from 190 offices in 35 countries and 120 external partner companies in over 80 countries transport around 140,000 tons of air cargo and 600,000 containers (TEU) every year. This makes for impressive cash management and FX figures:
Logwin’s treasury team processes over 5,000 single payments worth more than 500 million euros as well as 120,000 bulk payments of a similar value a year.
We also conclude around 1,700 FX deals worth 470 million euros with banks as well as 1,500 internal FX deals worth approx. 150 million euros every year.
To stay on top of things and remain efficient, we need to put a concerted effort into consolidating and automating wherever we can. One way to achieve this is an intelligent reconciliation and netting process for the receivables and payables resulting from logistics operations.
When we established “our” netting system, we had two main objectives: to centralize processes and to reduce invoice and transaction costs. Little did we know that we would also optimize our FX managementas a positive “side effect” – but more on that later.
The Logwin netting concept: integrating internal subsidiaries and external third parties
What makes Logwin special is our strong network of partner companies in countries and places where we don’t have an office. From a legal point of view, these agents are external third parties. However, given the close collaboration we wanted to include them in our netting process. This meant drawing up a clearly defined legal framework ahead of the implementation of a netting solution. This was the only way to roll out the system globally and as comprehensively as possible.
For Logwin subsidiaries and agents, netting is based on consolidated balances, i.e. not on reconciled individual invoices. This is the basis for payments and bookings as well as the hedging of FX positions. A special feature: the netting process and balance reconciliation are linked to the month-end close. This saves us another round of matching, as internal “payments” are booked directly on the subsidiaries’ clearing accounts. Agent balances, however, are offset directly, either in euros or US dollars.
Positive netting side effect for Logwin: centralization and hedging of FX risk
An unexpected benefit of Logwin’s netting concept is the centralization of FX risks. Incoming and outgoing payments to and from agents might be limited to two currencies, but in intercompany dealings, we must contend with as many as 24 currencies.
At Logwin, only the Group Treasury concludes hedging deals. We analyze and evaluate the risk and select suitable measures and instruments. Internal requests in connection with core business activities are submitted to the Group Treasury and confirmed by us directly in tm5. They are processed at maturity or wherever possible through netting.
As part of the netting process, Logwin reconciles over 17,000 intercompany payments amounting to 250 million euros every year. Reduced transaction costs allow us to make significant savings. In addition, we avoid cash management uncertainties and have boosted FX management efficiency. And the icing on the cake? Logwin’s multilateral netting concept is completely straightforward and user-friendly! The process creates transparency and visibility for all participants and is easy to follow, despite participants having different legal status.
(Original success story can be found at https://www.bellin.com/blog/a-netting-story/.)
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