In theory, moving funds between related entities should be a pretty simple process.
In reality though? For all too many Australian organisations, it’s anything but, with overdue and unsettled intercompany balances causing headaches for finance leaders at the end of the month or period, and on plenty of occasions in between.
Not sure if your conglomerate or corporate group is trucking or trailing, when it comes to processing intercompany transactions efficiently and accurately?
Here are seven signs that improvements are needed, and fast.
Cost confusion
Departmental heads always on your back about intercompany charges they either don’t understand, or don’t believe they incurred legitimately? It’s an all too frequent experience for finance leaders whose organisations don’t have the intercompany transparency and automated billing routes that enable costs to be directed correctly first time, every time.
Increasing audit costs
Higher than expected audit bills, incurred as a result of your auditors having to spend expensive hours following unnecessarily complex money trails? If you and your team don’t have a clear picture of how intercompany costs are allocated, an external party can hardly be expected to do so. In the absence of a perpetually audit-ready intercompany subledger, these cost over runs are likely to remain the norm.
Overdue and unsettled intercompany balances
Subsidiaries that continue billing each other, and open balances that keep growing, making coming to agreement over who owes what more and more difficult, with every passing month? Yes, it’s all in the family but that doesn’t mean aging intercompany invoices are any less of a risk to the health of the enterprise. Turning to technology that simultaneously books both sides of the transaction on the respective entities’ ledgers, and performs netting to optimise settlement and treasury processes, can stop the rot. As well as increasing reconciliation rates, it saves on transaction costs too.
Argy bargy about charges
He says, she says and it won’t be resolved until Christmas. Sound familiar? There’s nothing slows the passage of payments down more than a dispute and, in organisations where intercompany accounting processes are sub-optimal, these come thick and fast. At worst, they can take months to resolve and see senior leaders drawn into the fray, when financial personnel are unable to come to agreement. It’s a chronic headache that organisations which have the benefit of a centralised dispute management system are forced to contend with but rarely.
Continuous statutory audits
Been pinged by the ATO – again? Intercompany charges are the leading trigger for tax audits, here in Australia and around the globe. If you’ve been through the process even once, you don’t need to be told how time consuming and expensive it can be. In addition to the penalties that arise if the group’s finance teams have gotten it wrong, there’s the unappealing prospect of having the books thoroughly combed through, over and over again – the inevitable and unenviable lot of companies that fall foul of the taxman. If this sounds wearyingly familiar, a solution that readily supports tax compliant intercompany documentation is something you probably wish you already had in place.
Increased staffing demands
Being pressured to increase the headcount in your finance departments? Requests for more bodies may be entirely warranted – and thus difficult to refuse – if a multitude of intercompany discrepancies and disputes are preventing your teams from completing their allotted tasks in the allotted time. This sapping of productivity can be reversed with the deployment of finance automation technology that reduces manual processing and speeds the transaction flow.
The long slow close
Finally, do your monthly and quarterly closes take far longer than they should because questions about intercompany charges and balances need to be resolved before the books can be balanced? Having to ask your team to work nights and weekends to put old issues to bed may cease to be necessary, if internal chargebacks with full billing details – including all the data necessary for ATO substantiation – are automated.
Technology to make the task easy
The good news is, adopting standardised accounting processes, underpinned by a single, automated intercompany financial management solution, can put paid to your intercompany challenges once and for all.
You’ll be able to ensure intercompany transactions are posted promptly and accurately, if you select a platform that integrates seamlessly with the invoicing, Treasury and ERP systems already in use across the group.
You’ll also have the option to create a visibility layer that provides oversight of each ERP system, and the use of a centralised tool that enables those systems to communicate electronically.
Transparent alignment of individual charges and balances will allow intercompany balances to be settled in a streamlined, efficient manner. And because the process is automated, that can occur as often as daily, rather than weekly or monthly as was the norm, historically.
If improving operational efficiencies while driving tax effective processes matters to your group, it’s an investment that will pay oversized dividends, in perpetuity.
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