FIDI netting, ready to roll

FIDI has always been about providing tangible value for our Affiliates.

You may remember, in 2021, that we indicated the path to successful FIDI netting would be reasonably straightforward and that it looked free from obstacles. Yet we knew there would be some bumps in the road, and perhaps backtracking, or the odd diversion. And there were bumps, but these appear to have been ironed out now.

The FIDI Board and office are now in the final stages of setting up this fabulous new service, which will greatly help our Affiliates save money, smooth their cash management, and enhance cooperation within the FIDI network.

One of the recommendations from our lawyers – and the reason for the delay in launching this service – was to set up netting as a separate business. As this FIDI Focus magazine goes to print, FIDI has set up an LLC business in Switzerland, where we will harbour the netting services. This company is wholly owned and controlled by FIDI and will be working with a reliable and well-established treasury management company for the daily operations of our netting.

Participation is vital
As a reminder, for this project to succeed it is vital that all FIDI Affiliates who are in the legal position to allow netting, participate in this new service. While we cannot force any company to upload invoices into the system, we can make sure everyone contributes to the cost of the netting centre. It is then up to you to decide whether you want to make use of it and reap the benefits.

And there will be benefits; financial savings, to say the least. These obviously depend on how much trading you do with your fellow Affiliates, but a conservative estimate for a very modest use of the system by a smaller Affiliate, shows a saving of €5,000 or more. For extensive users, the savings run into tens of thousands, annually.

Some of the savings will obviously come down to the reduction in bank transfer fees, but an even bigger part will arise from the managed foreign exchange of currencies. Specialists reckon that for an annual volume of €200m, the foreign exchange (FX) cost in a non-netting system is close to 0.65 per cent, or €1.3m. With netting, this annual FX cost is reduced to a fraction of this, likely to be around 0.03 per cent, or a mere €60,000. These savings are enjoyed directly by the participants of the scheme.

Apart from the financial savings, it will help your business’s cash management. Once an invoice is uploaded, you can rest assured that payment will follow on the date indicated in the netting calendar. This will free up valuable time for your finance team to do more meaningful jobs than endlessly chase reluctant agent debtors.

Why netting?
What is ‘netting’ again? Basically, it is a way to reduce your risks in financial contracts with your fellow FIDI agents, by combining and aggregating multiple financial obligations (payable invoices) to arrive at a net obligation amount. It is like an offset between agents, which you do regularly anyway, but on a far wider scale, involving all FIDI agents and all of their inter- FIDI invoices in any given month.

How does this work in practice?
To put it simply, as a booker of business you’ll be receiving payable invoices from your FIDI agents. Once a month you’ll be asked to upload payable invoices due for payment into the system, just like every other FIDI mover will do. The netting centre will then calculate the net position of each participant, and will let you know what your position is – either a payable sum or a receivable sum.

There will be a few days for you to verify and reconcile, after which those who have a net payable position will be asked to pay to the netting centre. A couple of days later, the netting centre will pay those who have a net receivable position that month. All participants will receive a file of paid invoices, so you can reconcile in your accounting. Then a new cycle starts.

One sum per month
So, instead of doing multiple payments to multiple agents in multiple currencies each month, netting will ensure you pay or receive one sum per month in your chosen currency – and, in one go, a whole bunch of payable and receivable bills are settled and ready to be reconciled in your accounting system. There are some popular misunderstandings about FIDI’s netting service, and it is important to address these. One is that we would be asking our Affiliates to give FIDI control over their cash management or even bank account. This is not correct.

The system is payable driven, meaning that the booker/debtor of the business will need to upload the invoice, when it reaches the mutually agreed payment term.

The agent/creditor will approve the uploaded invoice details online, after which that invoice is added to the netting operation of that month. The system will then calculate whether you have a net payable or net receivable position that month. If it is a net payable position, you will be required to pay to the netting centre at a certain date. If you have a net receivable position, you can sit back and wait for the money to hit your bank account.

Another misunderstanding is that netting would show trade lines between individual FIDI Affiliates. While, obviously, the netting centre can identify these, the system has very stringent data security protocols, in the sense that FIDI can only report on general trade intensities between the various regions of the world, but cannot see or report on individual trading between Affiliates. That is also not the purpose of the service.

FIDI’s aim is, as always, to offer great value for money to our Affiliates, whether through long-existing services, such as the Academy or FASI, or with this very new netting service.

Enjoy the fruit
The benefits for our Affiliates largely outweigh the costs. With all members participating in the service, the annual cost is estimated at less than 500 per FIDI Affiliate. We are still fine-tuning this amount, but you can already tell this is minimal in comparison with the expected benefits. Even companies in countries where netting in a payable position is not allowed can receive payments from netting, thereby also participating in the positive fruits of this service.

There is still some operational work ahead, but we believe we can start the service in the second half of 2024. There will not be a pilot, or a slow integration. It will be drinking from the fire hose, so to speak, but the system has been broadly used in many industries, including ours, so implementation should go smoothly.

We are planning a couple of information sessions at the FIDI Conference in Edinburgh, where any questions can be answered, as well as an online session shortly afterwards.

FIDI today has 600 Affiliates, trading with each other on a daily basis, involving between 50,000 and 80,000 invoices per year, all triggering transfers of money from one bank account to another, across different countries and, often, in different currencies. The aggregate of all these invoices is hard to estimate, but it should be in the vicinity of 120-200m annually.

Each financial transaction has a cost attached to it, in the form of bank charges, currency losses and admin time. With netting, we can reduce this cost considerably, for each of our Affiliates. The goal is there, right in front of us: an international netting system that delivers true value to our FIDI Affiliates.

Please join in the effort.