Intercompany Hero: To Zero & Beyond

No doubt you’ve heard of the butterfly effect. It’s the idea that a very small action ultimately has a significant impact on huge, complex systems. The classic example is the miniscule change of air pressure from the flap of a butterfly’s wings that eventually causes a tornado on the other side of the globe. Some have tied the butterfly effect to chaos theory. Others say it shows how everything is connected. 

In the world of intercompany, both apply. Intercompany is indeed a huge, complex, often disorganized, ecosystem. And yet everyone in that ecosystem—even individuals who rarely touch it—have the ability to impact the entire organization.

The latter point isn’t often appreciated. According to BlackLine’s global survey of intercompany stakeholders, 86% of respondents agreed that intercompany is a “very misunderstood concept in finance.” What’s missing? The fact that different entities, different departments, and different teams are inextricably connected.

It may not always seem that way at ground level. Teams are often operating heads down in siloed fashion, trying to make sense of data that’s being churned out from a host of different entities across myriad jurisdictions. Disconnected ERPs aren’t talking to each other, and communication between entities gets heated when transactions can’t be easily reconciled.

What many don’t see, however, is that every corporate function is connected through intercompany. Accounting, shared services, FP&A, tax, and treasury each play a part in the multinational’s intercompany commerce. What this also means is that, because a particular intercompany action can undermine the organization’s ability to prepare accurate consolidated financial statements, an error at any point in the system has the ability to leave entities, as well as the parent company, vulnerable to risk and lost opportunity.

Where does this leave controllers? Unfortunately, they’re often in a bad spot. Because regardless of what is actually happening throughout the intercompany ecosystem, they’re the last ones to touch transactions. As such, when something goes wrong, all eyes are on them—even if an issue originated far upstream.

But while controllers would be justified in feeling like they’re too often left holding the bag, there’s an opportunity for them to flip the script and essentially turn their process plight into something altogether different—to be intercompany heroes. This can happen when they approach intercompany in a different way, by implementing Intercompany Financial Management (IFM). 

With IFM, global entities get the benefit of operational excellence, and with each finance function—accounting, tax, treasury, FP&A, and others—workloads are optimized to propel this new wave of efficiency and performance.

Also, with IFM, enterprises gain a host of benefits, such as eliminating intercompany write offs that impact the bottom line. They gain tax control so they’re not paying more in taxes than they should. Cash precision improves, ensuring that cash forecasting is on point, and accounting teams have full visibility of how cash is moving across the organization.

At the heart of IFM is the adoption of technology to automate intercompany transaction flows across the global value chain and centralized intercompany functions to enable visibility across corporate entities and teams. They’re key to ensuring that organizations reduce manual efforts, reduce time to close, and cash precision and tax control.

IFM technology optimizes three aspects of intercompany: Create, Balance & Resolve, and Net & Settle.

Create proactively prevents upstream snags and works to solve them on the spot. At this stage, IFM tackles intercompany activities such as routing transactions, validating pricing logic, ensuring tax compliance, and applying allocation logic. 

Balance & Resolve allows controllers to efficiently clean up whatever issues have fallen through the cracks, ensuring your time to close. This involves centralizing and automating actions such as matching, reconciliation, and dispute management. 

Finally, Net & Settle streamlines the tracking and settlement of intercompany balances while reducing FX settlement time and improving cash management.

Organizations that adopt IFM practices are empowered to go beyond zero while their controllers shine as intercompany heroes. The benefits gained will be seen from the ground up, including less close stress in operations, better transparency across functions, a more strategic response, and enhanced capacity.  

Get your copy of a global survey that examines essential questions about the state of intercompany at multinational companies.