5 Ways To Improve Intercompany Reconciliation

Elizabeth Milne

Part 8 in the Continuous Accounting Series. 

Globalization and new regulations like BEPS have raised the profile of intercompany accounting in recent years. With the rapid growth in the number of entities and subsidiaries from growth and acquisitions, efficiently reconciling intercompany balances becomes increasingly challenging while trying to meet all the needs of reporting, treasury, and managing currency risk.

Much of the complexity, and often the unreconciled balances between entities, are due to a multitude of factors. Often many teams are involved, including local accounting operations staff and shared services organizations, which makes the process diffuse and limits accountability. Different technologies in play, separate accounting structures, and lack of standard process and fuzzy relationships between parties can all make chasing down unreconciled balances hard, often with little in the way of documentation trail. Shared services teams can often struggle with a lack of visibility into subsidiary accounting, invoicing, and receivables systems.

It all means the financial close can drag on, or worse, corporate ends up using plugs to paper over unreconciled balances that effectively mask accounting errors and control deficiencies.

So how can you get to an efficient intercompany reconciliation process? What can you do to redesign a process that you can stand behind, that clearly shows account balances and variances between the parties (and that all parties agree on), that’s underpinned with the detail on both sides of the transaction necessary for confidence?

Getting it right can lead to big efficiency dividends. A recent survey by APQC found that top-performing organizations spend about a quarter of what their bottom-performing peers spend on the close. If you know how much time your team is spending on intercompany reconciliations, then you can do the math.

1. Shift reconciliations from monthly to continuous

OK, we know what you’re thinking: It’s hard enough doing monthly reconciliations, never mind continuously. But the reality is that tracking down transactions that are weeks old to match account balances, while trying to reach local accounting teams who are buried closing their own books, makes the process even more painful. Finger pointing gets a lot easier when the transaction seems like a distant memory. And leaving it to the end of the month can mean thousands of reconciliations stacking up and standing between you and a successful monthly close. Moving the reconciliation closer to the point of the transaction can make a big difference – but it requires rethinking people, process, and technology to keep pace.

2. Use real-time robotic process automation to speed matching

The latest continuous accounting technology uses robotic process automation (RPA), and it is foundational to moving to continuous intercompany reconciliation. It’s technology that uses matching rules to perform intercompany matching based on tolerance levels and identify exceptions automatically, integrating data from each entity’s systems of record without manual toil. It enables accounting teams to focus on discrepancies without having to certify each account manually, and instead see summaries of differences between entities and drill into the detail.

3. Maintain a live, centralized intercompany transaction repository

Invoices and purchase orders that are locked away in different parties’ systems make tracing the reason for discrepancies a big challenge and hinder a continuous process. Using intercompany hubs, enterprises can centralize documentation, transactional details, intercompany agreements, and pricing to act as a common connective tissue for collaboration between different entities.

4. Cut latencies from approvals and disputes

Going back and forth on email with disputes around the reasons behind intercompany discrepancies can often drag down teams. Workflow and controls enable organizations to manage disputes using approval processes, monitoring, and management of resolution all the way through to correction, including routing to the correct staff to decide which legal entity is liable.

5. Improve visibility into the reconciliation process

Do you have a clear definition of “done” in your intercompany process? In many organizations, it’s easy to be tripped up by unreconciled balances that come out the blue. Paired with centralizing intercompany transactions and approvals and real-time reconciliation processing, accounting organizations can deploy dashboards that provide them with a clear status of unreconciled balances at any point of the month.

Intercompany reconciliations are an area that, left unchecked, only gets ever more painful. More entities and more transactions all mean more reconciliations. With new tax reporting regulations moving into high gear that require more intercompany transparency, the resources you have in place today for reconciliations really should be spinning up on intercompany regulatory reporting, or perhaps modeling and planning the impact of these changes on your balance sheet. It’s time to rethink people, process, and technology to upgrade intercompany reconciliations.

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Elizabeth Milne

About Elizabeth Milne

Elizabeth Milne has over 20 years of experience improving the software solutions for multi-national, multi-billion dollar organizations. Her finance career began working at Walt Disney, then Warner Bros. in the areas of financial consolidation, budgeting, and financial reporting. She subsequently moved to the software industry and has held positions including implementation consultant and manager, account executive, pre-sales consultant, solution management team at SAP, Business Objects and Cartesis. She graduated with an Executive MBA from Northwestern University’s Kellogg Graduate School of Management. In 2014 she published her first book “Accelerated Financial Closing with SAP.” She currently manages the accounting and financial close portfolio for SAP Product Marketing. You can follow her on twitter @ElizabethEMilne