DEFINITION of 'Reinvoicing Center'

Reinvoicing centers are subsidiaries or separate divisions of a multinational corporation that handles intra-firm transactions in different currencies. It's the center of invoice processing and billing for different divisions located around the world. They bill and pay all invoices in the currency of the originating country and then re-invoice the affiliate branches in the local currency. The goal of a reinvoicing center is to protect the larger corporation from risks of foreign currency fluctuation

BREAKING DOWN 'Reinvoicing Center'

Reinvoicing centers are employed to limit the firm's risk of transaction exposure. Suppose U.S.-based XYZ Corp. has subsidiaries in France and Canada. The French subsidiary owes the Canadian subsidiary debt in Canadian dollars for an intra-firm purchase of processed goods. The U.S. arm of XYZ recently received a payment in Canadian dollars and now owes a debt in Euros. Instead of having each portion of the company engaged in its own foreign exchange transaction, a reinvoicing center funnels the different inflows and outflows of money—making the process more efficient and stable. The invoice center can also determine a preset foreign exchange rate for hedging against currency fluctuations. Here, the optimal solution is to have the French subsidiary exchange Euros to the U.S. office for Canadian dollars.

Advantages of a 'Reinvoicing Center'

Reinvoicing centers are a popular mechanism to hedge against foreign exchange risk and manage liquidity within local divisions and the larger group. Having each entity transmit invoices to the center effectively concentrates external foreign exchange risk for intra-firm transactions. In other words, the separate divisions transact in their local currency and do not need to navigate the external foreign exchange market. Moreover, reinvoicing centers can inject liquidity to local divisions requiring capital. It effectively improves the company's short term liquidity management by providing flexibility in intra-firm payments. Reinvoicing can also improve export trade financing and collections and reduce bank costs and payment terms. 

Disadvantages of a 'Reinvoicing Center'

A reinvoicing center can be rewarding for a large multinational but some risks still remain. For one thing, operating an efficient reinvoicing center comes at a cost to the larger corporation. It's an additional overhead cost that does not eliminate local accounts payable and receivables departments but instead supplements those services. A company must be clear the reinvoicing center creates advantages and risk management mechanisms that outweigh the costs. In addition to costs, reinvoicing centers can complicate tax filings. Dealing with different currencies around the world is sometimes considered a tax evasion strategy. To avoid this risk, the center must apply clearly documented procedures and understand the tax positions in advance. 

  1. Investment Center

    An investment center is a business unit that can utilize capital ...
  2. Invoice

    A commercial document that itemizes a transaction between a buyer ...
  3. Populous (Cryptocurrency)

    Populous is a peer-to-peer invoice platform founded in 2017.
  4. Activity Center

    A pool of activity costs associated with particular processes ...
  5. Translation Risk

    Translation risk is the exchange rate risk associated with companies ...
  6. Pro-Forma Invoice

    A pro forma invoice is a preliminary bill of sale sent to buyers ...
Related Articles
  1. Investing

    Protect Your Foreign Investments From Currency Risk

    Hedging against currency risk can add a level of safety to your offshore investments.
  2. Investing

    The 3 biggest risks faced by international investors

    Investing internationally is a great way to diversify your portfolio, but you need to know the risks and barriers that are faced in global markets.
  3. Investing

    Creating An Invoice Template

    How to ensure your invoices include all the key information - in a design that makes them easy to find. A little effort now saves a lot of trouble later.
  4. Investing

    Alexa Might Soon Be Answering Call Center Queries

    Amazon reportedly plans to release cloud-based tools that will enable customers to configure their own call center.
  5. Investing

    5 Ways To Invest In Currencies

    As the economies of some countries sputter and former third-world countries are beginning to emerge, currency investing is becoming more intriguing. Learn ways to make money on money with the ...
  6. Small Business

    Small Business: Speed Up Receivables To Avoid A Cash Crunch

    Waiting for customers to pay can be a losing game. Look to factoring for quicker cash.
  7. Trading

    Understand the Indirect Effects of Exchange Rates

    Exchange rates have a tremendous influence on the economy. Exchange rates can indirectly affect many of the most important aspects of our lives.
  8. Investing

    Apple to Invest $921 Mln in Second Data Center in Denmark

    Apple plans to build another renewable energy-powered data center in Denmark.
  9. Trading

    Why U.S. Dollars Aren't Accepted in Canada

    Is the U.S. dollar accepted in Canada? Learn about the legal and practical aspects of using U.S. dollars in Canadian transactions.
  10. Trading

    How to Calculate an Exchange Rate

    Struggling to get a grasp on exchange rates? Here's what you need to know.
  1. What are the goals of covered interest arbitrage?

    Learn the three major goals of covered interest arbitrage and increase your comprehension of the foreign exchange trading ... Read Answer >>
  2. The risks businesses face in international finance

    When an organization engages in international financing activities, it takes on additional risk, including foreign exchange ... Read Answer >>
  3. How do I find out my bank's bid-ask spread for currency conversions?

    Learn how to find your bank's bid-ask spreads for currency conversions, and understand why you should consider alternative ... Read Answer >>
  4. How does the balance of payments impact currency exchange rates?

    Take a brief look at the relationship between a nation's balance of payments and the exchange rate value of its currency ... Read Answer >>
Hot Definitions
  1. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  2. Liquidity

    Liquidity is the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's ...
  3. Federal Funds Rate

    The federal funds rate is the interest rate at which a depository institution lends funds maintained at the Federal Reserve ...
  4. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  5. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  6. Entrepreneur

    An entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture.
Trading Center