BlackLine Blog

April 24, 2024

Fix Intercompany Now Before Your Organization Expands

Modern Accounting
4 Minute Read

Jim Tilk

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Intercompany inefficiency is a big problem and finance leaders know it. According to the latest BlackLine-sponsored SSON report, “The Hidden Costs of Intercompany Inefficiency,” more than 80% of organizations recognize intercompany as a problem to be solved, and this concern deepens when intercompany activity is linked to trade.

The survey—which was based on questions asked of intercompany employees in Shared Services, Finance and Accounting, Controllers, Tax, and Treasury—also reveals:

  • 75% of respondents perceive their intercompany processes as underperforming and want to fix them.

  • Two-thirds believe intercompany is “a growing problem,” even for smaller enterprises managing less than 500 transactions per month.

  • 60% of respondents spend two or more workdays per month on intercompany

  • Nearly 50% plan to move more intercompany work into a shared services model

Still, many organizations don’t seem to comprehend the urgency of addressing these issues. Putting off these changes further exacerbates the financial drag that organizations are already experiencing. While all companies can benefit from optimizing intercompany operations, the more acquisitive organizations stand to lose the most in the way of wasted time and resources and reduced profitability if they postpone making these improvements.

Company Size Matters Regarding Intercompany

“We’ll get to fixing intercompany next year” is no longer an option for multinationals, and that’s especially true for large organizations. All businesses face challenges, but the bigger an organization is, the harder it is to get control of them and the greater the negative impacts become.

As multinationals scale, so do intercompany inefficiencies and the challenges resulting from those inefficiencies—challenges that lead to a longer close, unprecedented imbalances, aggravating disputes, and wasted resources in every region across the enterprise. In fact, of the survey respondents whose disputes take more than one week to resolve, 75% had more than 30 legal entities.

A snapshot example of how this phenomenon manifests is the sheer volume of intercompany transactions that must be processed. The greater the number of transactions, the greater the opportunity for errors, delays, and a drag on monthly close. ​​Each transaction reflects a granularity of data that can quickly overwhelm a process, translating into tens of millions of dollars.

Intercompany Challenges That Scale

If we look at the biggest barriers to intercompany success, it's clear how each becomes more detrimental to an expanding enterprise.

Too many imbalances. If the foundation on which these transactions are built is not robust and reliable (or the data is not available), the impact will be an exorbitant number of out-of-balance transactions. Many multinationals find it impossible to get to zero each quarter. The bigger the enterprise, the more imbalances must be untangled, leading to more time needed to close.

Increased time needed to close. According to the SSON survey, about 60% of respondents said they are spending two or more workdays per month on the intercompany close (with 15% of organizations stating they had at least 50 FTEs working on intercompany).

Some of the larger businesses are taking well over a week to close. It’s critical that multinationals build inefficiencies into the system to save time and free up employees to work on value-added, strategic tasks. As the graphic below shows, there is a clear connection between the time spent on the close and the need to invest in full-time employees (FTEs).

Time Spent on Intercompany During Close Vs. Number of FTEs Working on Intercompany

Disputes are out of control. Disputes are a huge problem for organizations trying to reduce their time to close, largely due to poor-quality data and a lack of transparency. Without the ability to work with one central source of the truth, intercompany teams take untold hours reaching out to various entities to retrieve data needed to resolve disputes.

According to the survey, the larger an organization is in terms of legal entities, the more time it takes to resolve disputes. The graphic below shows the correlation between time spent on the close and the number of legal entities in the picture.

Number of Legal Entities Vs. Time Spent on Intercompany During Close

Struggling with time-consuming, non-automated processes and outdated technologies. Due to a reliance on manual processes, activities are not only prone to errors, but they add to the workload, costing teams even more time. Too many organizations aren’t relying on dedicated technologies or upgrading their systems. A majority still rely on ERPs and spreadsheets that each operate differently, and so few processes, if any, are automated. As companies grow and expand, the number of ERP systems can balloon, leading to an unmanageable number of disputes, as the graphic below shows.

Systems Used to Handle Intercompany Vs. Frequency of Disputes

Lack of clear ownership of processes and transactions. The efficiency of business services largely depends on the extent to which a system is centralized and standardized. According to the survey, 40% of multinationals are missing this clarity and control. Instead of working with a centralized model—such as with a Global Process Owner (GPO) or a shared services model (that has been found to be effective in managing large-scale transactions)—they are working in silos. The larger the organization, the more elusive ownership clarity becomes. Imagine businesses trying to manage separate process owners spread across different functional departments with no clear knowledge of who is accountable for what transactions. Compounding the problem is that these entities lack the visibility they need to communicate and collaborate with each other effectively.

A failure to overcome tax issues. The SSON survey confirms a hard truth: The larger a company’s size and revenue, the more challenging tax reporting and compliance becomes. While smaller organizations tend to be most concerned about intercompany impacting the close, the larger organizations see tax and write-offs as their greatest challenges. Therefore, it’s not enough to only address intercompany issues solely from an accounting perspective. What’s needed is an equivalent focus on taxation and a strategy that aims to transform tax in a revolutionary way.

Addressing Intercompany Issues Today

While issues may start as a small problem that can be overlooked, as businesses grow, those problems grow with it, affecting core performance indicators around closing the books, imbalances, and tax owed. Therefore, the time to begin to overcome intercompany challenges is now.

It’s also imperative that issues be addressed holistically because everything is connected within the intercompany ecosystem. Problems in one department impact many others. Poor-quality data downstream causes problems upstream. When a system is prone to human error, transactions are imbalanced, and disputes arise. When there’s a lack of transparency, the close saps resources and makes it nearly impossible for Tax and Treasury to make decisions with confidence.

There is only one path forward for multinationals that are committed to grow and succeed: optimize policies, processes, and technologies without delay. That includes developing a centralized data platform for real-time reporting across all systems, automating processes, and optimizing performance and productivity through AI-driven technology.

The benefits include:

  • Freeing up working capital

  • Reducing transactional errors that have tax or regulatory implications at the source

  • Improving transparency and real-time monitoring via controls

  • Developing a centralized data platform for real-time reporting across all systems

  • Streamlining processes and process ownership

  • Optimizing performance and productivity through technology

Embracing an Optimized Intercompany Future

Today’s enterprise leaders are under pressure to “future-proof” their businesses to ensure they can withstand challenges that come from within and from outside the organization. The objectives should be nothing less than enjoying a fast and accurate financial close and a transparent system that ensures data integrity and tax compliance with minimal disputes.

BlackLine, a leading intercompany solutions provider, can help organizations of all sizes meet those goals. Our AI-generated solutions can unlock a host of impactful benefits by enhancing data accuracy, providing real-time insights and end-to-end visibility, working from a centralized data source, and minimizing tax and regulatory risks.

Get your copy of the SSON report: The Hidden Costs of Intercompany Inefficiency


About the Author


Jim Tilk