internal source of funds and multilateral netting of international business

1. By: MD ABDULGAFOOR
Central University Of Karnataka
Internal Sourcing Of Funding
And Multilateral Funding

2. Definition
Funds an organization can raise from
the retained profits, sale of assets, sale of goods and
services, etc. In internal financing, the sources of finance
obtained from inside of the business or organization
Internal finance is money that comes from within a
company, rather than from external sources.

3. SOURCE OF INTERNAL
FUNDINGS
Profit
Sales of assets
retained earnings
Sale of owners property
Personnel selling
Current assets

4. Advantages of IF
Capital is immediately available
No interest payments
Spares credit line
No influence of third parties

5. Disadvantages
- Expensive because internal financing is not tax-
deductible
- No increase of capital
- Not as flexible as external financing
- Losses (shrinking of capital) are not tax-
deductible
- Limited in volume (volume of external financing as
well is limited but there is more capital available
outside - in the markets - than inside of a
company)

6. CONCLUSION
Various sources of financing are available. Not
every business can use all of the available
financing choices. Choosing the right
financing source is based on these vital
points; business condition and the interest
rate or the other cost of the finance. Some
sources of finance are more flexible than
the others, according to the business
situation, while refunding risks should also be
considered.

7. Multilateral Netting
Multilateral netting is a process that simplifies and
reduces the cost of setting inter-company
transactions. Netting can also be used to settle 3rd
party transactions.

8. Reduces the number of inter-company funds transfer
payments
Minimizes costs of associated foreign exchange
Avoids the need for group companies to make
multiple payments transfers and execute conflicting
foreign exchange transaction
Zero sum game; intercompany receivables =
intercompany payables

9. Handling
It can handle the following intercompany
transactions:
 Trade payments
 Interest payments
 Dividends
 Loan payments
 Investments

10. How it works
Step 1: Data collection
Collect the invoice details from affiliates
 spreadsheets
File upload from ERP system
Step 2: Netting calculation
Calculation process to determine net position for each
participant
Trail run using estimated FX rates to determine Net
currency positions to be traded
Second run using actual FX rates

11. Step 3: settlement
Settlement process
Net payers pay netting centre for value settlement day
in local currency
Netting centre pays net receiver in their local currency
Netting centre settles FX trades with 3rd party banks for
net position of each currency

12. Pros and cons of multilateral netting
Faster implementation
Problem follows up done by outsourcer
Guaranteed that funds will be paid/collected with
proper value date
FX costs cannot be eliminated entirely, outsourcer
trades remaining FX; lose ability to obtain
competitive FX bids.

13. Thank you