Redefining Intercompany Financial Management

Intercompany transactions have become one of the biggest distractions for finance and accounting. Some eye-popping notes:

• Deloitte says intercompany transactions represent the biggest consumer of cost and time in the close process

• The Organization of Economic Cooperation and Development found that 70% of international trade involves the global value chains of multi-national corporations as services, raw materials, parts, and components cross borders—often multiple times

• Intercompany transactions for multi-nationals often dwarf their external sales by ten times or more

• A recent internal survey revealed that 97% of respondents said challenges with intercompany hinder finance and accounting operations

We live in an era of global trade, mergers and acquisitions, and ever-changing tax regulations, all of which create a growing headache for accounting, tax, and treasury teams.

Global regulations are rapidly evolving to help ensure all tax jurisdictions get their fair share of revenue from these intercompany transactions. In other words, tax jurisdictions expect intercompany transactions to be governed with the same rigor as external transactions to unrelated companies.

What does this mean? Accounting, tax, and treasury teams that continue to rely on traditional, manual processes that are anchored in anecdotal information are vulnerable to noncompliance and increased financial risk. Managing that risk is now the biggest distraction for finance and accounting teams who have to hunt down details buried deep in massive transaction volumes, which delays cycle times and slows down business decisions.

What’s worse is that intercompany administration does not add a single dollar of revenue. It’s the cost of doing business—and the cost of getting intercompany transactions wrong can be very high. For example, if regulations are not followed, inadmissible taxable income or expenses can expose a company to hefty tax penalties.

It’s an unsustainable operating environment for organizations looking to modernize financial operations. Learn 5 ways to make intercompany transactions easier.

BlackLine CEO Marc Huffman says, “intercompany challenges are not new, but with increasingly complex global business models and regulatory scrutiny, demand for intercompany transformation is higher than ever.”

From these challenges, a new discipline has emerged: intercompany financial management (IFM). IFM is becoming critical for structuring and handling transactions within a corporation and between its legal entities. Other benefits of this new area of focus include maximizing staff efficiency and accounting accuracy, optimizing tax exposure, minimizing tax leakage, and ensuring consistent tax and regulatory compliance.

And there is good news. BlackLine, which already helps companies centralize and streamline end-to-end intercompany accounting with BlackLine Intercompany Hub, is advancing our IFM capabilities even further with the acquisition of FourQ.

FourQ technology complements existing BlackLine functionality with:

• Unmatched domain expertise from experts who empathize with your intercompany pain and complexity and guide you with purpose-built solutions

• Optimized tax and transfer pricing modeling to reduce the overall tax burden from intercompany transactions and minimize tax leakage

• Reduced foreign currency risk by optimizing working capital and empowering treasury teams

• Enhanced regulatory compliance with transaction lifecycle management from initiation to close which ensures consistent tax compliance to free companies from conservative risk-avoidance to driving strategy with confident substantiation

• Rapid M&A integration to enable speedy evolution of business models in an era of increasing consolidation and emerging market demands

As you consider your intercompany processes, Huffman notes, “most companies are still using legacy, repetitive, and manual processes to manage intercompany, exposing their businesses to unnecessary costs, significant compliance risks, and missed working capital and tax opportunities.

“By moving to a modern intercompany accounting environment and eliminating distraction, companies can unlock capacity in F&A to focus on what matters most to the business.”

Get your copy of the white paper Stop Guessing, Start Automating: How to Turn Intercompany's Distraction into Action to learn about three innovative solutions to help you automate intercompany processes: Create, Balance & Resolve, and Net & Settle.