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Why your multinational band must all play in tune

Technology

An efficiency dividend awaits groups that invest in automated intercompany financial management.

By Claudia Pirko 13 minute read

Is intercompany accounting something of an Achilles heel for your otherwise highly efficient conglomerate or multinational organisation? If you answered in the affirmative, you’re far from alone.

Here in Australia and around the world, intercompany transactions represent a time and cost drain like no other when it’s time to close the books.

In the absence of standard processes, bespoke methodologies and complex workarounds are commonplace. For many groups of related entities, it’s a mess that seems too daunting to tackle.

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The result? Accounting, finance, tax and treasury teams in each of the entities working overtime to optimise transfer pricing, square the accounts and keep on top of ever more complex compliance requirements in their respective jurisdictions.

Very often, they’re using a disparate array of incompatible finance and accounting systems, which make it impossible to achieve high-level visibility into the financial position of each entity, and the group as a whole. As for the free exchange of data between them, fuggedaboutit, as New Yorkers say!

Using intercompany financial management

However, there’s a solution that can transform the intercompany process, introducing efficiency and rigour where confusion and costly chaos once reigned.

By implementing a standardised process, underpinned by an automated intercompany financial management system, your group of entities can achieve clarity, transparency and that formerly elusive zero balance.

If you opt for a platform that has the capacity to service a software ecosystem comprising multiple invoicing, treasury and ERP systems, you’ll be laying the groundwork for a brand new status quo; one which sees intercompany transactions posted promptly and accurately as a matter of course.

Creating an intercompany layer that gives finance leaders visibility of every ERP system in the ecosystem means related entities are able to monitor transactions, from order placement right through to delivery.

Inefficiency is purged from the process and treasury, tax, accounting and finance teams have the information they need to optimise transfer pricing, cash flow, foreign exchange and tax planning.

With transactions and balances visible and aligned, settling intercompany accounts ceases to be the complex calculation exercise it once was. And because the payment process is fully automated, settlements can be carried out much more frequently — as often as daily, if desired — than would be possible, if the group was operating in manual mode.

Making the switch successfully

But saying adieu to the old method and embracing the new isn’t as simple as signing up an intercompany financial management vendor and switching their solution on.

In my experience, working with organisations which have undertaken this journey, ‘hastening slowly’ is the secret to success. Because intercompany accounting is everybody’s and nobody’s business, it pays to have everybody who matters on board from the outset: finance, accounting, tax and treasury leads from across the group who can work together to effect a smooth transition.

The best way to ensure it occurs is to attack it in stages. What does that look like in practise? Typically, companies start with a pilot program that covers a particular type of invoice or process. Once it’s up and running smoothly, the project team is able to apply their learnings to the next chunk of work, building momentum as they go.

And, if they’re smart, they’ll recognise that successful financial transformation is about people as well as processes — which means they’ll invest accordingly, in change management programs to bring the entire team along on the journey.

Saving time and money

Systemising, automating and rationally enforcing intercompany processes has always been a compelling proposition. Doing so introduces accuracy, efficiency and rigour to an area of operations where, for many groups, they’ve been sorely lacking.

With inflation continuing to drive up the cost of completing transactions in manual mode, making the switch to an automated intercompany platform could be one of the smartest moves your organisation’s finance function makes this year.

Claudia Pirko is regional vice-president Asia-Pacific at BlackLine.

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