5 minute read
September 07, 2022
5 minute read
Often overlooked, significant operational inefficiencies in multinationals come down to manual, bespoke, unsystematic intercompany processes. Adopting Intercompany Financial Management (IFM) automates, enforces, and systematizes processes that can unlock value by making intercompany operations more efficient, and allowing the enterprise to operate better across many functions as the effects ripple outward.
Unlocking the value in intercompany. The inefficiencies within most enterprises’ intercompany processes, and therefore the value waiting to be unlocked, is substantial:
"Intercompany represents the biggest disparity in efficiency between world-class and peer group finance organizations.” -William Marchionni, Sr Director, Finance Advisory, The Hackett Group
"Companies with 1,000 or more employees take 7 days or longer to complete their close and intercompany is a major contributing factor.” -Robert Kugel, Ventana Research
“Intercompany transactions represent the biggest consumer of cost and time in the close process.” -Kyle Cheney, partner at Deloitte
Automating processes streamlines intercompany operations. Manual processes create a tangle of operational inefficiencies for intercompany operations. These bespoke processes and workarounds exist when there aren’t standard ones established, let alone a way of organizing them across the enterprise.
Worse, these intercompany inefficiencies compound over time. When every entity and business unit looks at intercompany through its own lens, the ability to digest what’s actually taking place operationally is nauseating. And even the best custom, semi-automated processes are time-consuming and costly when something breaks, and one must figure out what went wrong and fix it. Accounting, finance, tax, and treasury can often spend more time keeping systems afloat than strategically managing the business.
Finance and accounting are freed from putting out intercompany fires. Finance may be the function that gains the most from a good intercompany solution. Finance is no longer unduly burdened with formal (or informal, back-channel workarounds and contacts) compliance and continuous last-minute problem solving, always under the pressure of a looming monthly, quarterly, or annual close.
Rationalizing intercompany services. Services provided within an enterprise, such as R&D project hours, expat charges or IT billing, are particularly common intercompany transactions that are notoriously challenging to manage. This is because they lack common data structures similar to other transactions processed through an ERP (i.e., finished goods movements from inventory to a warehouse).
There are nuances to different services being billed, both across enterprises and even within them. When systematically rationalized, intercompany services can often be billed in a similar manner, revolutionizing how these transactions are managed. This may seem like small gains, but what you discover can amount to highly significant improvements. And certainly, when you’re striving for best in class, you don’t want to leave anything off the table.
Enforcing two-sided bookings. Technology on the back end of intercompany operations also enforces booking two-sided journal entries. Integrating with each entity's respective ledgers ensures that the entries are booked and removes the need for manual matching. You can do a final validation, but the technology enforces automatic booking on both sides of the transaction instead of lengthy disputes to resolve imbalances from unbooked entries.
Preserving knowledge and obviating training costs. Manual intercompany processes are plagued by continuous hiring and retraining of intercompany administrators. Passing knowledge down to new people brought in to manage bespoke, manual intercompany processes and problem solving is both inefficient and fraught with errors.
Since the tasks administering intercompany are not intellectually challenging work for individuals with the talent to do it, few stay in positions for long and knowledge of intercompany workarounds and how particularities are managed are regularly lost. This reality makes it prime work for automated tools to perform, freeing talented individuals to take on more meaningful intercompany challenges.
A good intercompany solution does three things: systematizes, automates, and then rationally enforces intercompany processes. An enterprise must be capable of classifying and cataloging what billing is transacting through intercompany. Such systematization is of no real use unless the solution can also drive some rigor across every unit entity and function that is impacted by the billing. Finally, a good intercompany solution automates these processes so they are error-free, transferable without quality erosion, automatic, and compliant.
An IFM approach begins by stepping back to look at all related subprocesses and data sources that go into managing intercompany transactions. This contrasts with a traditional R2R approach, which just accepts the outcomes of these processes (i.e., the intercompany numbers being billed across and throughout the corporations).
BlackLine Intercompany has a demonstrated track record of helping teams centralize intercompany operational processes including O2C, P2P, and R2R, allowing F&A to more efficiently support evolving tax statutory requirements and audits including, but not limited to, SAFTI, GILTI, and BEAT taxes. Customers see, on average, up to 80% efficiency gains and, for closing teams, over a 60% reduction in days to close.
These vastly shortened cycle times are particularly important given that long cycle times result in stale data, which is ultimately impaired data. Shortened close cycle times mean more agility, which results in better competitiveness in a global economic environment that is in flux and rapidly changing.
Adam Laura is BlackLine's Chief of Staff, Intercompany
Watch this on demand webinar Next Stop for Financial Transformation: Intercompany Financial Management to explore intercompany as a growth catalyst in your organization.