Blackline logo
BlackLine + FourQ

FourQ acquired by Blackline, leading financial close and accounting automation platform.  Learn More.

CONTACT US
BLOG
Back to Blog
Intercompany

How to Overcome Intercompany Accounting Disconnects Caused by Liquidation Issues

Intercompany disconnects often arise due to internal breakdowns in communication related to the termination or transition of resources.

Kristina Thorne
Kristina Thorne

Jan 26, 2022

In finance and economics, the term “liquidation” refers to the process of bringing a business to an end and distributing its assets to claimants. In the complex world of intercompany financial management, however, the term has a slightly different meaning with a unique set of costly challenges, which corporations need to overcome.

Intercompany liquidations occur when business entities within a multinational corporation cease using certain assets or services or when human resources are moved to different businesses. This would mean the original business should no longer foot the bill for their HR and IT cost, for example. However, intercompany disconnects often arise due to internal breakdowns in communication related to the termination or transition of resources.

This post examines these breakdowns and explores ways in which they can be overcome.

Problems Commonly Associated with Intercompany Liquidation

A classic example of an intercompany liquidation problem relates to the use and allocation of shared assets. Intercompany teams commonly look to charge the cost of shared computing capacity to the various businesses that use it. When teams or people no longer need the use of a server, the intercompany team must accurately liquidate the cost of that server, charging the appropriate end-users for their share and shifting costs when necessary.

Unfortunately, the people who are receiving the costs often don’t understand what they are, or the reason for a change. For example, a business unit may accurately reject being charged for an employee’s cell phone after the employee has moved from their business to another. Solving such intercompany disconnects requires a lot of costly back-and-forths.

Training programs within a corporation, for example, a financial management program, is another common intercompany liquidation pain point. It can happen that, after spending a short time in a role, program participants get moved to another business unit, but the employee cost still gets billed to the original business. When Financial Planning and Analysis (FP&A) teams look at their numbers, they discover the costs are being billed to the wrong business, possibly for months.

Another area where intercompany liquidation can become cumbersome is when someone doesn’t change the billing routes when an asset like a server is no longer used or is sold. The bill still gets sent to the original business which, when it comes time to close, realize they have too much or too little on their books.

You may also have to occasionally credit and rebill. This often happens when employees move to another business. In that case, you must take the time to adjust that balance and ensure the costs end up sitting in the correct end recipient’s ledger. Analysis to understand the correct amounts and time spent to credit or rebill these invoices can be costly. If the initial invoice is already settled, the seller may have to refund the buyer. This incurs more time and costs for the treasury teams as well as additional bank and foreign exchange fees.

How to Solve the Problems of Intercompany Liquidation
FourQ’s advanced intercompany financial management software and services allow companies to centralize their intercompany transactions. Companies are then able to view, monitor, and analyze intercompany globally. This insight provides companies with tax savings, increased productivity, and better decision-making capabilities.

FourQ’s OneBiller provides end-to-end intercompany automation using configurable billing routes between buyers and sellers. This enables companies to structure transactions into service types and enrich transactional data to generate impactful intercompany process analysis and insights. 

Because this results in a complex scenario, the invoicing is run through an aggregation. For example, if a corporation has 50,000 employees, it won’t want 50,000 invoices. So, the cost will be applied to all 50,000, but then aggregated, which means condensing it based on certain criteria and reducing the amount of invoices going to business entities within the corporation. This becomes especially important in countries like Vietnam, Russia, and India which still operate with paper copies of invoices that require signatures.

Another issue that arises with intercompany invoicing on an international scale is tax considerations. An invoice coming to a corporate headquarters in the US, should be allocated to business units around the globe. To help overcome the challenges of BEAT tax, and associated currency issues, FourQ creates invoices for the locations where goods or services are consumed. Keeping invoices within the country simplifies VAT and eliminates many of the other complexities.

Kristina Thorne

Billing Operations Manager, FourQ

How Tax Operations Are Impacted by Misaligned Intercompany Processes

How Tax Operations Are Impacted by Misaligned Intercompany Processes

Learn how mismanagement of intercompany accounting can impact multinational corporations' tax operations.

How to Put a Stop to the Never-Ending Close with Intercompany

How to Put a Stop to the Never-Ending Close with Intercompany

Learn how your organization can automate the management of intercompany transactions across disparate systems and put an end to the never-e...

How Misaligned Intercompany Processes Affect Company Tax Operations

How Misaligned Intercompany Processes Affect Company Tax Operations

Published in Volume 125 of Tax Notes Federal, Dirk Van Unnik, Vice President of Tax, explains how intercompany accounting impacts tax opera...