Additionally, subsidiaries only have to deal with transactions in their functional currency and do not require additional FX bank accounts.įor intercompany invoices, the settlement can even be processed via internal clearing accounts (i.e., “inhouse bank accounts”) and thus completely avoid the detour via external bank accounts. The advantage is that the re-invoicing center can economize on the increased FX volumes exchanged in the market and hence achieve more beneficial exchange rates. In this type of situation, the factor (or “re-invoicing center”) that is usually the same entity as the inhouse bank or corporate treasury centralizes all invoices that are not in the functional currency of a specific subsidiary. The sale or transfer of intercompany or external accounts receivables and payables can also be used to manage foreign exchange (FX) transactions on behalf of the subsidiaries. This profit margin is typically expected in an arm’s length transaction.
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