The 5 Intercompany Risks Lurking in Your Business

Intercompany accounting is often viewed as a routine back-office function—a necessary but low-stakes part of closing the books. However, this perspective is not just outdated; it's dangerous.

In reality, hidden complexities within your intercompany processes can expose your organization to significant financial, operational, and regulatory risks. Left unmanaged, these issues can erode profits, delay the financial close, and attract unwanted attention from tax authorities.

For finance leaders at multinational enterprises, understanding and addressing these risks is no longer optional. It is a strategic imperative. Here are the five most common intercompany risks and how to begin mitigating them.

The Hidden Risk: Some organizations tend to operate under the assumption that since intercompany transactions occur between related entities, they simply cancel each other out. This oversimplification ignores the reality of discrepancies in pricing, currency fluctuations, and timing differences that lead to unresolved balances.

The Impact: These unsettled balances don't just disappear. They accumulate over time, complicating intercompany reconciliations and delaying the financial close. Eventually, they may lead to significant write-offs that directly impact the bottom line.

Furthermore, these unresolved accounts represent trapped cash, which increases the cost of capital and limits liquidity. Your finance talent is then forced into a cycle of manual reconciliation efforts instead of focusing on strategic, value-added analysis.

The Hidden Risk: Inconsistent or poorly documented transfer pricing policies are a major compliance red flag for tax authorities worldwide. Global standards like the OECD's Base Erosion and Profit Shifting (BEPS) framework and IRS regulations have intensified scrutiny on how multinationals price intercompany transactions.

The Impact: When transfer pricing is managed in silos across tax, finance, and legal departments, it creates inconsistencies and "undocumented interpretations." This lack of central oversight can trigger extensive audits, resulting in substantial tax penalties and protracted disputes with authorities.

In some cases, it can lead to years of recurring audits, unanticipated tax liabilities in high-tax jurisdictions, and the inability to reclaim VAT/GST.

The Hidden Risk: Growth, particularly through mergers and acquisitions, often leaves companies with a patchwork of different ERPs, sub-ledgers, and accounting systems.

This "giant hairball of systems" makes a unified process impossible, forcing teams to rely on manual, error-prone workflows using spreadsheets and email to manage and track transactions.

The Impact: This reliance on manual workarounds creates two critical problems: a lack of visibility and poor data integrity. Without real-time insight into the transaction lifecycle, identifying and resolving issues early becomes impossible, causing significant delays in the financial close.

Inconsistent data entry and timing mismatches lead to inaccurate financial reporting and erode trust in the numbers presented to stakeholders and leadership.

The Hidden Risk: When intercompany settlements and disputes are handled through email chains and disconnected spreadsheets, it creates a messy audit trail and operational bottlenecks.

The lack of a transparent, standardized settlement process obscures the true state of intercompany balances.

The Impact: This opacity prevents a clear view of approved balances, which directly impacts liquidity management and foreign exchange exposure. Operationally, it hinders supply chain excellence.

Business leaders lack clarity into intercompany volumes, costs, and cash flows, making it difficult to make optimal decisions about internal versus external sourcing or to refine operating models for greater efficiency.

The Hidden Risk: Intercompany accounting rarely has a single, dedicated owner. It is typically a shared responsibility fragmented across the controller's team, tax, treasury, and local finance departments. While this seems collaborative, it often results in a lack of clear ownership and accountability.

The Impact: Without a centralized function driving the end-to-end process, problems fall through the cracks between departmental silos. Each group has its own priorities, leading to process inconsistencies, reporting errors, and delays.

Unresolved disputes often escalate to senior executives, wasting valuable leadership time that could be better spent on strategic initiatives.

Transforming intercompany accounting from a source of risk into a strategic advantage requires a focused, structured approach.

• Centralize and Standardize: Establish a single source of truth to manage all transaction records, documentation, and policies. This creates the foundation for consistency and control.

• Establish a Center of Excellence (CoE): Bring together key stakeholders from accounting, tax, treasury, legal, and IT. A CoE can establish clear ownership, standardize global processes, and govern the end-to-end intercompany lifecycle.

• Leverage Automation: Use technology to automate transaction matching, intercompany reconciliations, and the creation of detailed audit trails. Automation reduces manual errors, accelerates processes, and frees your team to focus on analysis.

• Implement a Global Subledger: A global subledger provides a real-time, consolidated view of all intercompany balances, exceptions, and settlement statuses across every entity. This level of visibility is crucial for proactive risk management.

Intercompany accounting is far more than a monthly chore. The hidden risks associated with outdated processes are significant, impacting financial accuracy, tax compliance, and operational agility.

BlackLine’s Intercompany solutions are purpose-built to address these challenges—centralizing all transaction records, standardizing intercompany policies globally, and automating reconciliation, settlement, and audit trails.

By leveraging BlackLine, organizations gain a single source of truth, real-time visibility across every entity and jurisdiction, and robust compliance support that stands up to regulatory scrutiny.

If you’re looking to establish an agile, future-ready financial foundation, BlackLine empowers finance teams to mitigate risk, accelerate the financial close, and unlock new efficiencies to drive strategic growth.