Reducing B2B Liquidity Needs With Integral Netting, A Systemic Solution

This paper introduces a novel economic, financial and algorithmic approach to improve liquidity management and reduce systemic risk in business-to-business payment networks. A temporal integral netting framework is designed to tackle the challenges posed by intercompany debt chains and delayed invoice settlements. The proposed system enables a transition from deferred gross to conditional net settlement. Utilizing a Netting Estimator and a Network Funder, the model algorithmically identifies optimal structures, such as debt trees and paths, to maximize both invoice clearing and financing efficiency. Applied to a large-scale dataset of 22 million invoices from Italian firms in 2019, our algorithm demonstrates the capacity to clear approximately 50% of total debt with a significantly reduced liquidity need. We show that under realistic assumptions, the Network Funder working capital reaches a plateau in a few months, allowing the system to work with a fixed amount of funds. Moreover, our experiments show that over 70% of participating companies experience at least 50% of debt reduction. All these observations confirm that our process is technically scalable, financially viable and systemically beneficial. We offer a tool for improving liquidity management while maintaining reasonable risk levels for the financing agent.