November 04, 2020

5 Focus Areas for Driving Efficient & Future-Focused Intercompany Accounting

5 Focus Areas for Driving Efficient & Future-Focused Intercompany Accounting Image | BlackLine Magazine

5-minute read

Too often, organizations are fighting through a thicket of clashing policies, processes, and technology approaches when handling their intercompany transactions.

Different ERP systems are misaligned and unintegrated. Timing differences in policies thwart coordination. The buyer and the seller can’t see what’s on each other’s books, and when problems inevitably surface, it can be unclear who needs to be contacted for a resolution. Inefficiencies and delays pile up, triggering costly exposure to foreign-exchange risks and setbacks for when earnings are reported.

The intercompany journey covers Accounting, Tax, and Treasury across business units and subsidiaries in often enormous organizations that span the globe. As such, it requires a holistic approach, which I will discuss during my session at BeyondTheBlack, The Intercompany Journey: Enabling Your Top Use Cases.

BlackLine’s Intercompany Hub is a powerful solution that provides structure, clarity, and visibility—but this journey doesn’t begin and end with a software implementation.

For instance, greater standardization gives organizations better information for better analytics and forecasting (such as in transfer pricing) to make better decisions—directly impacting the bottom line. And reporting gets much simpler, particularly for indirect taxes such a VAT and GST, with the right entries eliminated for consolidated financial statements.

Building on the power of Intercompany Hub, a holistic approach covers these five key areas to boost your ROI.

Underlying Policies & Data Architecture

These components provide a foundation for your finance/intercompany operating model. Considerations include when you cut off intercompany transactions posting to your general ledger, for example.

Challenges surface when the cutoff time is not synchronized globally. Many companies will cut off accounts receivable (AR) on the day after the workday and then accounts payable (AP) a day later to create synchrony with a bit of flexibility, if different ERP systems are in play.

Also, do you use the functionality in your ERP system to track counterparty? The seller, in intercompany AR, can put the buyer in the counterparty, so each side of the transaction knows whom to talk to if needed.

Initiation of Intercompany Transactions

If your system is configured effectively, trade flows are automated. Purchase orders come from external or internal companies and customers, leading to a sales order that comes out with the intercompany results.

The non-trade categories are vastly more complex than typical trade: dividends, royalties, commissions, and loans, for example, are manual transactions originating out of a variety of departments.

Intercompany Hub offers a defined process and workflow with controls in place. You can arrange an up-front preapproval within the workflow, for example, so that when an invoice is created and posted on the buyer’s and seller’s books, it can be automatically taken to payment.

Posting of Invoices

In an integrated system, trade transactions flow through easily. But with separate ERP systems, AR and AP are handled separately, and non-trade transactions add another dose of complexity.

With Intercompany Hub, the right data is posted to the ledgers of the buyer and seller at the same time even when different ERPs and data structures are used, thanks to the use of templates.

Matching & Reconciliations

These can be done at a company-to-company level (by looking at the seller and buyer to see whether they have the same balance) or at the invoice level (by matching the invoice from the seller to what the buyer has).

Intercompany Hub can match on an invoice-line-item level, which is important for addressing a couple of problems on an invoice—say, the wrong item or quantity—without tossing the whole invoice or manually hunting through Excel spreadsheets.

Dispute Resolution & Settlement

Generally, a global process owner will bring the seller and buyer together to resolve a dispute if it’s under a certain dollar threshold, or it could be escalated to a committee that meets on a certain timetable (often quarterly).

A settlement can take different forms—for instance, by netting AR and AP against each other and paying the difference or making the payment on every invoice (sometimes mandated). Or, rather than exchanging cash back and forth, a number will be booked into equity.

Some companies take the amount, and on an annual basis, they settle it. Intercompany Hub can accelerate and document these resolutions.

To help clients on this journey, EY professionals address operational policies, processes, data, automation, and change management for a full transformation from end to end. In this opportunity, more efficient, more accurate, and faster reporting is table stakes: companies that approach it holistically can also capitalize on better forecasting and analytics and therefore engage their tax and accounting staff with more fulfilling and important work.

Join us at BeyondTheBlack to learn more about intercompany transformations and leading practices from a Fortune 500 company. Representatives from BlackLine, Ernst & Young LLP, and other event sponsors will give a talk with Kraft Heinz in The Intercompany Journey: Enabling Your Top Use Cases session at 12:00 pm PT on November 19.

Marva Dryke

Modern Accounting