Wizz Air Group, a European ultra-low-cost carrier, has implemented J.P. Morgan Payments’ virtual netting solution becoming the first client to test the capability. The solution streamlines settlement of intercompany multicurrency invoices to reduce foreign exchange (FX) costs and manage risk exposure across its global operations.

Operating across multiple jurisdictions, global organizations like Wizz Air frequently manage a mix of currencies for funding, operations and intercompany transactions. This currency mismatch can contribute to FX-driven earnings volatility and adds operational complexity for treasury teams that manage multicurrency balances.

To manage this risk, companies often rely on traditional netting software that settles intercompany payables with cash-based foreign exchange transactions. These solutions can introduce realized FX gains or losses across intra-group flows, adding volatility to net income that shifts in impact depending upon prevailing exchange rates. Moreover, invoice batching and netting cycle timings of traditional netting software add significant operational complexity with reconciliation and dispute management.

J.P. Morgan Payments offers an innovative alternative through virtual netting. This solution allows multinational companies to individually settle multicurrency intercompany invoices between their subsidiaries without ever moving cash or engaging in market foreign exchange transactions. Companies settle their intercompany invoices one by one—without grouping or batching—using a virtual account provided by the in-house bank (IHB) in each currency in which they have invoices. Clearing intercompany trade payables on a gross basis avoids the reconciliation complexities of traditional netting engines from single net settlement against multiple gross invoices.

Instead of each entity wiring money back and forth to pay intercompany invoices, virtual accounts are used to initiate and settle these transactions without cash. And where there is a cross-currency component, virtual netting invokes the in-house bank’s own FX rates to translate each invoice into the correct settlement currency and amount.

Virtual netting eliminates the friction and expense of managing intercompany transactions, including foreign exchange conversion costs and transaction fees, which can add up to millions of dollars a year for large global enterprises. It also gives treasury teams greater visibility and control over their company’s internal cash flows and FX exposure, enabling smarter funding management, FX hedging decisions and more efficient liquidity management.

By moving settlement of intercompany transactions out of the bank network and into the in-house bank enabled by virtual accounts, companies can reduce complexity, free-up working capital and achieve a faster return on investment than when using scarce capital to purchase traditional netting software.

Virtual netting builds on J.P. Morgan Payments’ broader liquidity and risk management capabilities, including virtual account management and integrated FX solutions.

For more information about J.P. Morgan Payments’ treasury solutions, see here. Read more about the virtual netting here.

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