A Multinational Corporation’s Roadmap for Intercompany Transformation

If you took a snapshot of today's market, you’d see that many organizations are embracing digital transformation. Finance leaders, controllers, and team members know the benefits, and they're moving toward standardization across all record-to-report processes (R2R). This is especially true for intercompany, where enterprises can prioritize tax compliance and seek real-time reporting to support decision-making.

But while the trend is moving toward standardization, many multinationals are still working with outdated finance and accounting systems. These teams are getting by using manual and decentralized processes that result in operational inefficiency, increased risk, and frustrated team members who spend too much untangling imbalances instead of planning for the future.

Why aren’t more organizations moving toward better intercompany, with improved data accuracy and efficiency, a quicker close, and better compliance? The reasons are complicated, but a big obstacle is that many businesses are unsure how to develop a transformation strategy. Put another way, they lack an “intercompany roadmap” to get there, so they never feel ready to embark on this journey.

Intercompany isn’t only confined to accounting departments. It’s made up of cross-functional processes involving multiple teams, such as Accounting, Tax, Financial Planning and Analysis (FP&A), Treasury, and Shared Services. Intercompany would be a piece of cake if everyone worked off a transparent, centralized sub-ledger.

But that’s often not the case. Intercompany is a huge and complex ecosystem that spans many different (and disparate) entities and geographies. There are macroeconomic challenges; multinationals are grappling with an increasingly complex tax and regulatory environment, and the number of governments mandating e-invoicing and automation requirements is growing.

Still, several challenges emanate from within the enterprise itself. For operations that aren’t digitized or fully automated, three challenges make intercompany particularly difficult:

1.     Process. Touchpoints in the intercompany ecosystem involve manual data processing. Team members email information back and forth and use spreadsheets to track transactions. Errors and disputes are typical and must be worked out individually. When information is handed off between teams, it takes considerable time and leads to costly errors, imbalances, and disputes.

2.     Technology. Different functions rely on different technologies to process millions, or even billions, of intercompany transactions—sometimes involving dozens of ERPs that can’t communicate with each other—an issue compounded with every merger or acquisition.

3.     People. Teams are working in silos. Without clear ownership or accountability over policies and procedures, teams often maintain the attitude that imbalances and other problems are for “another function to figure out.”

So, at every close period, there’s a time crunch. Tax and Treasury feel insecure about their numbers, and the stress team members experience impacts morale. Other negative outcomes of a non-optimized intercompany system include:

• Financial misstatements that negatively impact company reputation, stock price, and shareholder value.

• Cash flow difficulties due to misalignment of cash budget to cash demands.

• Increased reconciliation errors.

• Difficulty complying with complex US and international tax regulations.

• Large FX gains and losses occurring from intercompany activity.

• Increased scrutiny of local statutory reporting.

• Difficulty understanding intercompany P&L.

• Increased disputes and late settlements.

Fixing these problems can only be achieved by transforming intercompany processes and embracing this shift holistically. The process starts by building a framework that provides a comprehensive, end-to-end approach.

Each organization’s framework is unique, although it is made up of universal building blocks or intercompany operations. To construct your intercompany framework, identify your operational areas and outline their key activities.

For example, Master Data Management establishes the process for data ownership. Policies typically include the development of global policies and detective controls. Workflow could define each function’s processes, and so on.

Once you have your framework in place, you’re ready to roll out your intercompany roadmap and begin your transformation journey.   

Once you have constructed your framework, it’s time to develop a transformation strategy to improve all areas of your intercompany operation. Here are some suggested steps to follow:                

• Envision an optimized future. Imagine the state of intercompany if processes were optimized, all teams worked with a global, standardized sub-ledger, and enjoyed end-to-end visibility. What could you accomplish that you’re not able to now?

• Conduct a root-cause assessment. Identify gaps in the system that are preventing you from achieving those positive outcomes. Scrutinize your current intercompany processes and technologies and determine where they fall short.

• Connect with stakeholders. Invite teams from different functions, including Finance, Tax, Treasury, Shared Services, and IT, to discuss the transformation journey. Engaging with these functions early in the process will ultimately improve processes and gain critical buy-in.

• Research solutions. Based on input from stakeholders, conduct deep-dive research to determine which solution providers offer a platform that will best meet your organization's needs.

• Make the business case. You’ve built on your framework to the point where you’re ready to make the business case to finance leaders. Focus on what’s most important to your CFO, such as boosting ROI and meeting key business objectives.

• Develop an implementation strategy. Plot out project milestones for implementation and testing and assign roles and responsibilities to key players.

• Implement and monitor the solution.  Once the solution is in place, set up a monitoring schedule to ensure that it continually performs and is set up to identify issues automatically.

A great intercompany solutions provider offers more than just the latest tech. You should also consider whether it has formed meaningful and lasting partnerships with firms that are experts in the intercompany accounting space. If the provider lacks these connections, your teams might be left slugging through their day, reverting to time-consuming manual processes — the very tasks they had been trying to leave behind.

A vendor that has formed these partnerships can empower your organization to work with a complete solution. For example, BlackLine’s global network includes leading consulting, reselling, and technology organizations. Partners can help organizations centralize global intercompany processes and streamline them through the three critical phases of Create, Balance & Resolve, and Net & Settle.

Perhaps your policies haven’t been revamped recently, or you may be outsourcing teams more than you’d like. Regardless of where your business is in its intercompany transformation journey, there is a way forward. Constructing your intercompany framework and following a transformation roadmap will enable your business to develop an effective intercompany strategy and achieve key business outcomes, including improved efficiency, compliance, and employee satisfaction.