Five ways to identify intercompany differences earlier and drive a faster close

By Shak Akhtar, SVP Finance Automation/Customer Experience Officer, Redwood Software

Intercompany elimination is a common barrier to a fast and accurate financial close. For large global organizations operating across multiple geographies and time zones, coordinating all the intercompany activities at month-end quickly becomes complex due to the sheer volume and interdependency of tasks and tight deadlines.

The problem is that intercompany accounting still requires enormous manual effort to reconcile, adjust and record transactions, despite large investments in ERP and finance systems. In fact, 40% of senior finance professionals say difficulties in reconciliations and intercompany agreement is what delays the reporting process the most, according to FSN Research.

Here are five ways finance automation can improve the intercompany process and drive faster resolution:

1. Put in place an intercompany management dashboard and task management

This is about enabling better communication and collaboration between companies within the group structure with an easy-to-view dashboard and automated task management. Many companies still use informal methods, such as email, to notify each other of an intercompany charge and it’s easy for those transactions to get overlooked or lost. Automation formalizes that process and ensures that sending and receiving companies can communicate more effectively when they are processing intercompany transactions.

2. Automate intercompany balance reconciliations – and on a more frequent basis

Leaving reconciliations to the month-end requires huge manual effort during the peak period. You can take away some of that pain and make the close a non-event by automating those intercompany reconciliations throughout the month, on a daily or weekly basis. The automation will perform the reconciliation and then highlight the differences and even correct the errors if requested.

3. Automate the balance adjustments themselves

Typically, finance teams are forced to make manual intercompany balance adjustments at month-end. If it’s not a material difference that has been identified, they will usually need to put a reversing adjusting entry into one company’s books to force the intercompany balances to agree. However, automation can identify those intercompany differences and make the balance adjustment entries automatically throughout the month. Again, this reduces the month-end workload and stress.

4. Use automation for the approval process to manage handoffs and handovers

Take the example of company A, which has to raise a manual invoice to send to company B for its share of some marketing expenses. Typically, company A has to post invoices and journals to its side to reflect that charge and then email them to company B. The process then relies on the person at company B doing the same, assuming they have picked up the invoice from the email. It’s easy to see how invoices and charges get lost or how errors are made using this manual and informal system. Automation formalizes each step and manages the end-to-end process, including the approval and all the handoffs and handovers between people and companies along the way so nothing is missed.

5. Automate the production of audit trails and documentation

Automating intercompany also improves transparency and auditability. In the same example as above (point 4), if company B receives a charge for its share of some marketing costs, automation will send a full breakdown of the total charge and what your share is. This simplifies making a decision on accepting the charge, which can be automatically posted to avoid a reconciliation difference.

There are also significant additional benefits to automating intercompany accounting. It can ensure upstream tasks dependent on the reconciliation process are completed successfully. This avoids errors and re-work and ensures, for example, all intercompany asset transfers are made before depreciation is calculated and posted. And manual activities such as intercompany profit elimination can be automated to speed-up and simplify reporting at month-end.

Find out how to automate your intercompany and make your financial close a non-event with Redwood Finance Automation

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