Intercompany transactions — those financial interactions that take place between subsidiaries, divisions, or departments of the same “umbrella” or parent company — cover a wide range of complex activities that can include providing services, borrowing or lending capital, paying dividends, and buying, selling or transferring components or assets like inventory, machinery or even intellectual property. While intercompany transaction management is also not considered a “sexy” activity for any company, it’s vital that teams engaging in these processes manage them to the same level of precision that they would when engaging with an external partner or vendor. The truth is that intercompany transactions are complicated from a legal and financial management perspective — and many companies simply don’t have the knowledge or personnel bandwidth to handle them appropriately. If this describes your situation, you should know that the risks include:
- leaving a lot of money on the table unnecessarily;
- breakdowns in intercompany accountability and poor decision-making; and
- compliance exposure.
The Global Connection: Unique Challenges Facing Multinational CompaniesFor intercompany accounting teams in multinational organizations, the stakes are even higher because they are tasked with tracking financial interactions that often occur simultaneously across multiple units or departments located throughout different countries. What’s more, they face intense and growing pressure to ensure the accuracy of each transaction on many fronts — including ensuring global tax compliance, protecting against government audits, paying vendors on time, reducing and preventing interest payments or penalties, and overseeing multiple enterprise resource planning (ERP) systems that often don’t communicate with each other. And they are being asked to do all of this against resistance to developing expensive custom software solutions and cost productivity bogeys. In particular, multinational organizations engaged in intercompany transactions face a unique list of challenges not only because they deal in multiple currencies, but because they tend to implement a variety of informal policies and non-standardized oversight procedures that are managed by decentralized departments, leaving them more vulnerable to tax issues, compliance infractions, and inefficient use of resources. Add to the mix the growing layers of regulations, intensifying scrutiny and audits from governments around the world, and increasing consolidation across many industries, and multinational businesses can find themselves facing serious financial consequences related to under-management of intercompany transactions. However, many companies often miss the signs that small sporadic problems can be indicative of larger systemic issues — and they don’t know how to address issues that arise other than to hire expensive consultants and throw more people at the problems.
What to Do If You Need HelpIf your company is in search of help in implementing best practices for managing the complexities of intercompany transactions, the good news is that there are now full-service, plug-and-play software solutions that automate accounting and vendor invoice management for the smallest to largest multinational organizations. When combined with guidance and training from experienced professionals, these purpose-built software solutions can integrate seamlessly with your existing ERP platforms in real-time to help you to streamline and consolidate these vital functions. As a result, you’ll accomplish the following tasks cheaper, more efficiently, and with less risk and better results in terms of regulatory compliance:
- Centralize intercompany accounting — Includes everything from invoice receipt and qualification through validation and approval.
- Automate back-office manual processes — Improves productivity of company resources, reduces costs, and eliminates the need to dedicate more staff to problem-solving.
- Minimize global compliance risks — Helps you realize you have a problem before it’s too late. You want to be proactive and get in front of issues rather than reactive to adverse consequences after they occur, such as fines or penalties for non-compliance.
- Reduce or eliminate tax risks — Monitor frequent changes in international taxes to ensure that your workflows and billing cycles are optimized for tax efficiency — avoiding “tax leakage” or overpayments to foreign governments and optimizing returns on value-added taxes (VATs).
- Optimize resource efficiency — Eliminate the need for more expensive piecemeal solutions that are based on ongoing licensing fee models.
- Maintain vendor relationships with on-time payments — Reduce past-due invoices and associated late fees, and increase the efficiency and productivity of your accounts payables/accounts receivables.
- Implement continuous monitoring — Get the support you need to keep your intercompany accounting running smoothly.