Payments netting in international cash management: A network optimization approach

Abstract. Rationalization of global production and operations by multinational corporations have created a large volume of inter-company funds flows. By a process of netting interaffiliate pay-ments, significant savings in cost can be realized. Shapiro formu-lated the mutinational payment netting problem using linear pro-gramming. This paper presents a network optimization approach that is both computationally efficient and intuitively appealing. Further, the proposed approach recognizes the need to integrate the netting system with the MNC's overall cash management sys-tems as well as by explicitly accounting for cash outflows on ac-count of transfer costs. Additionally, the paper provides insight into actual corporate netting practices