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A Guide to Solving Intercompany Financial Management Challenges for IT

Enterprises with multiple ERP systems and other systems of record that operate in more than a handful of tax jurisdictions face unique and costly IFM challenges -- especially when it comes to optimizing IT systems for IFM accuracy.

Adam Laura
Adam Laura

Jun 29, 2021

Enterprises with multiple ERP systems and other systems of record that operate in more than a handful of tax jurisdictions face unique and costly IFM challenges -- especially when it comes to optimizing IT systems for IFM accuracy. Managing chargebacks and inbound charges using multiple systems and methodologies cause data to be misrepresented. Companies then wrestle with a lack of transparency into costs that are pushed down to the business units, an inability to turn data into insights quickly, a lack of confidence in quality and accuracy, and an inability to standardize the process across departments and business units.

Part of the root cause of misrepresented data starts with IT consumption data, typically generated from multiple sources.  To ensure the accuracy of their consumption data, multinational technologists need to understand how the consumption data is being used within the finance function. They also need to clearly understand how their IT costs for servers, service providers, software license agreements, data management, and related human costs, are being charged back to consuming business units and functions via intercompany billing.

Since IT consumption data tends to come from disparate sources, including complex invoices without purchase orders, it is rarely structured and aggregated. As a result, companies often struggle to get an accurate grasp of their Total Cost of Ownership (TCO) and how it should be distributed. Issues arise. Blind spots and technology barriers, such as incomplete data lakes, prevent clear access to information from all the different entities. Inadequate accounting and tracking of intercompany technology transactions result in tax leakage, unsettled balances, untimely settlements, and fines.

Simplify the Complex

In an ideal world, finance teams would have structured technology data at their fingertips, unlocking key insights to manage their TCO and their recharge processes. They’d be able to provide transparency into the entire billing process, from cost captures in very different systems to very different consumption unit drivers and all the way down to settlement.

Intercompany data can generate value when it is structured and applied correctly. Part of the structuring is classified by the service being provided. It should be appropriately enriched with any transfer price markup, any VAT that needs to be applied, and various data attributes. The use of enriched data and click-through details would, in turn, unlock key reporting, tax and audit insights.

To do this successfully, companies also need common billing metrics. While companies analyze IT functions at a very detailed level, there is no need to bill at that same intricate level. Rather than focusing on the nuances and exceptions of specific technologies, the metrics for billing purposes should be based on a common denominator. For example, instead of having separate metrics for server type A and server type B, you would simply have a single set of server metrics based on the lowest common denominator (server cores). This way, the metrics can be fully rationalized and configured through the billing routes, and scale as server technology continues to evolve.

Develop a Fresh Perspective

An accurate and comprehensive TCO can only be achieved through three different, but interconnected, views of an enterprise's technology costs, which can inform the best method for the organization to manage its technology billing:

The Application View: Different business units need to be informed of what their applications cost to run, in terms of infrastructure and people. Different data points need to be simplified and blended to provide this view for billing purposes.

The Human View: A majority of a technology function’s total cost profile is usually people-related. Accurate IFM depends on clear insight into the individual consumption costs and where the people-related costs are being incurred across the organization.

The Functional View: Business units need to understand their actual IT costs versus what they budgeted, and management needs to understand the operating efficiency of each function. To avoid disputes about charges, they also need to understand their specific infrastructure and maintenance costs based on easy-to-understand consumption metrics.

Remember Critical Tax Considerations

With the TCO established, you may be tempted to think that your Tax team will be able to manage across tax jurisdictions easily. However, there are considerations in your IT billing practices and architecture that could help the team more accurately calculate things like BEAT, transfer pricing, and indirect taxes. It goes without saying that all transactions between legal entities must be tax and regulatory-compliant. However, failure to include tax considerations in the distribution of your TCO to consuming entities provides a less-than-perfect picture and increases the risk of tax penalties and other operating inefficiencies.

Automate Manual Processes and Reduce Costs

IT is a massive cost pool within the enterprise spanning hundreds of millions of dollars. Special attention should be given to the way costs are structured.

Transparency into the TCO facilitates explainability and allows business leaders to understand the business context behind the technology charges they’re incurring.

Automating the manual intercompany billing process in multinational organizations is a complex challenge that can’t be solved by technology alone; expertise and experience are required. Companies can either choose to develop or acquire these skills and capabilities in-house, but risk automating only parts of the end-to-end intercompany process, or they can outsource the capabilities to a well-established vendor.

The FourQ Approach to IT-Related IFM Challenges

Built by finance, accounting, and tax experts, FourQ deploys Intercompany Financial Management (IFM) solutions that streamline the IT operations of the world’s largest companies. The FourQ team will assess the current state of your IFM processes and recommend how your IT-related data can be structured and optimized for transparency. IT billing data will be enriched to include the tax and regulatory considerations of your IT transactions. Finally, FourQ will implement a solution that automates the entire intercompany billing process, end-to-end.

What makes FourQ’s approach to IFM unique is enriched data, touchless billing processes, and ongoing operations.  As owners of the service delivery model, FourQ takes full accountability for how your IFM operates on an ongoing basis. Unlike other providers that leave you to manage your own environment after deployment, the FourQ operations team stays with you to improve operational productivity. The team ensures your billing strategies and routes are correctly maintained, and your tax is maintained based on the dynamic tax laws that are constantly evolving.

FourQ processes over $34 billion annually across 110 countries. Discover how it can transform global operations at your organization. Contact FourQ today.

Adam Laura

Adam Laura is Head of Commercial Finance at FourQ. In his role, he focuses on strategy development to support business growth. This includes financial planning, reporting and market analysis to optimize company performance. Prior to joining FourQ, he supported other enterprise fintech companies by building business plans from inception through execution. Adam holds a Bachelor of Science in Finance from Roger Williams University.

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