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 payments, significant savings in cost can be realized. Shapiro formulated the multinational payment netting problem using linear programming. 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 systems as well as by explicitly accounting for cash outflows on account of transfer costs. Additionally, the paper provides insight into actual corporate netting practices.

This is a preview of subscription content, access via your institution.

Author information

Affiliations

Authors

Additional information

*Venkat Srinivasan, Ph.D., is Assistant Professor of Finance at Northeastern University's College of Business Administration. His most recent article is to appear in a forthcoming issue of The International Journal of Management Science: OMEGA. His research interests include working capital management, conceptualization of decision support and expert systems for strategic financial decisionmaking and the interaction between Finance and R&D. He has been recently appointed Collaborator for Advances in Working Capital Management, a series of research annuals to be published by JAI Press.

**Yong H. Kim, Ph.D., is Associate Professor of Finance at the University of Cincinnati. He has published extensively in the area of working capital management and is the founding editor of Advances in Working Capital Management, JAI Press. Formerly an Executive Vice-president for Operations for a Cincinnati-based consulting firm specialized in designing and developing decision support systems (DSS) for strategic financial decisionmaking, his current research interests include expert systems for financial applications, international financial management, R&D, and pension fund analysis.

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Srinivasan, V., Kim, Y. Payments Netting in International Cash Management: A Network Optimization Approach. J Int Bus Stud 17, 1–20 (1986). https://doi.org/10.1057/palgrave.jibs.8490421

Download citation