How do we solve a problem like intercompany? It's a big and challenging question. To simplify it, we need technology, process, and expertise. Technology is the transformation catalyst. To apply technology on top of intercompany, you need to ensure your intercompany is working properly. For that, you need a process that defines how your optimization should run. Then, of course, you need people to manage it. There are a lot of people across the organization that need to be involved because it's very complex. You also have to involve a lot of different teams, because it is not just one team that owns this process.
This blog post breaks down the complexity of intercompany and provides expert tips and advice on how to lower costs and increase efficiencies by improving your intercompany process.
Think big, start small
The first piece of expert advice is this: Don’t boil the ocean. The intercompany ocean is huge. You need to first break down the intercompany landscape into different billing processes and systems. Focus on transforming the most manual or risk-prone processes.
Look at the biggest exposure that you have out there in your intercompany, then understand the full scope of the intercompany processes. Examine the holistic intercompany process, from the intercompany policy, starting at the top. How do you govern this? How do you capture the cost? Continue your examination all the way through to your settlement and management disputes. Consider all the stakeholder perspectives, including FP&A, controllership, tax, and treasury. Isolate the most painful billing processes. Next, look at the most painful processes that are being experienced, evaluate the intercompany processes that are critical, accept policy shortfalls or process shortfalls, and gather the perspective of those involved in the intercompany processes, across all the levels of the organization.
From there, bifurcate the process components, identify the bill and processes and data that are ready for automation today. There are going to be processes today that are less complex and can be repeatable. Reuse some sort of allocation that can really be automated today, compared to building processes that change month over month, or just very ad hoc. And then lastly, educate across the enterprise. Ensure everyone knows there's an active management role in managing intercompany administration, and everyone's really on the same page, so they know how intercompany should work within the organization.
Involve multiple stakeholders
It's no surprise that there are a lot of different perspectives across an organization. And a lot of times, people just think of controllership and how they own the intercompany process, because they own the books and records. They run the policies, and they need to be transparent and auditable and do all the reconciliations. But there are also many other different departments within the organization involved in intercompany. FP&A needs to access the data, and a lot of times, they own allocation models for costs that need to be split out globally. They're also involved in budget, and intercompany needs to be budgeted for, through cashflow predictions, etc.
FP&A needs to be able to trace the cost and they need to actually show cost productivity. Tax teams should be involved heavily in the process. They need to be able to be transparent, show how the data is structured. They need to be able to do all their statutory tax considerations, local tax, BAT, CST, etc. They need to review transfer pricing governance and report on that to ensure they're doing the correct transfer pricing. And then, to really be strategic, investigate how your intercompany is flowing globally. Make sure that it's going the correct tax route, so you have no tax, or the least amount of tax leakage. Also, ensure that you're not adding any excessive risk or exposure.
Treasury should get involved in the next step. Start with netting volume management. Try to reduce the number of bank fees or FX gains or losses. Make sure you have cost forecasting. Doing a strand cost would be the last thing you want to do in the event you’re billing a country that won’t allow you to take cash out. An intercompany review requires lots of considerations with lots of stakeholders to consider. This process should make it clear that when it comes to intercompany, it's not just one group, it's multiple groups across the organization.
Improve Your Intercompany Processes
Now we examine how your intercompany flow can be transformed. There are multiple ways that intercompany costs can come into a process. You could get vendor invoices. Another very common one is IT technology costs. For example, mobile phones, your computing, your servers, usually are centralized costs that need to be brought into the company, audited, validated, reviewed, and then paid. And then from there, you need to figure out how to get those costs out to the rest of the global organization that is actually consuming those costs. At that point, you have this vendor invoice or costs that are accumulated over time, and then you need to allocate those costs. This means you need to do an allocation calculation, which is usually carried out by an FP&A team.
Next, you need to review and approve everything, and apply any potential taxes, transfer pricing, and so forth. After that, you can get into the invoice and the journal entries. Once those get sent out, go through your dispute adjustments. It stands to reason that not everyone is always going to be happy with the charges they receive. They need to be adjusted sometimes. This involves going through dispute management, which can escalate all the way up to the CEO of the company. Next, you have to go through settlement, where you use all your important analytics to establish what you’re doing, what the global process is, and what you’re currently processing through your systems. This is very difficult to achieve without one holistic intercompany view.
How We Can Help
Global transaction management is typically manual, complex, and subject to rigorous regulatory and tax implications. This makes intercompany accounting a time-consuming, burdensome administrative process for multinational companies. Furthermore, the close and financial reporting are dependent on the process' completion, which all too frequently delays these critical tasks.
With intercompany financial management solutions from FourQ (recently acquired by BlackLine), companies can manage the entirety of their intercompany accounting processes, minimize administrative costs, and decrease the time required to close.