June 09, 2022
BlackLine Magazine
This series will start by reviewing the three main complexities of global intercompany service transactions and how they interrelate.
Any organization that transacts globally knows that intercompany billing can be fraught with problems. There are a variety of complexities—process, tax, and regulatory—with the potential to wreak havoc on an enterprise’s performance. When those complexities compound, they can become such a burden that they threaten to paralyze the organization, making it difficult to even contemplate a better way forward. Worse, this phenomenon is often accepted as “just the way it is” simply because the problem seems insurmountable.
But it doesn’t have to be that way.
This series will start by reviewing the three main complexities that plague intercompany processes and how they interrelate. In the follow-on content to this series, we’ll take a deeper dive into each of these issues.
One of the greatest pain points of intercompany billing is the process itself, which is typically manual in nature. The more human touch involved in any process, the greater the inefficiencies and risks.
With intercompany processes, risk can manifest itself in many undesirable ways. Some of those include unreconciled balances, prolonged settlement times, or cumbersome and ineffective dispute resolution processes that consume a lot of human resource without obtaining a high return on the time spent. Additionally, given the typically high turnover rate for shared service centers where intercompany processes tend to be centralized, a lack of knowledge about the process, services, and stakeholders can create further challenges.
Another process-related pain point is the likelihood that the organization’s various entities are using disparate ERP systems that don’t interact with each other seamlessly.
Take booking a two-sided entry, for example. This isn’t possible across multiple ERPs, because the counterparty must always be involved in the transaction, creating a manual process and people-related burdens. Centralizing to a single ERP is a good strategic objective to strive for, but often overlooks the practical business environment. As the enterprise grows—whether organically or through M&A—the odds increase that such disparate systems exist. Even if the organization commits to taking on the massive task of moving onto a single ERP platform, intercompany processes still risk being manual.
Further complicating the manual nature of the process and the disparate systems involved is that many global organizations lack common, well-documented, and enforceable policies around intercompany processes. As a back-office function, intercompany billing doesn’t get much notice. So when employees in different entities handle intercompany tasks differently, process disparities may not garner attention. As a result, guidelines and controls are interpreted differently, with no standard of measure for enforcing them.
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