Intercompany processes are a big pain point in corporate accounting, tax and treasury. How big of a pain are we talking about? According to United Nations World Investment Report 2013, 80% of all global trade is done within corporate value chains – intercompany. Yet, intercompany processes get little attention in organizations, leading to manual and inefficient processes, silo-ed assets and uncertain operational metrics. According to a Deloitte study from 2016, 54% of companies struggle with manual intercompany processes. These manual processes add to operational costs due to time consuming disputes and reconciliations. They also prevent corporations from reliably assessing their assets and liabilities.
Where Do Intercompany Problems Originate From?
Your company growth through mergers and acquisitions means your organization has inherited a number of legacy systems and practices. These legacy systems don’t automatically talk to each other. In addition, often during M&A, integrating and automating internal processes gets pushed back in the priority task list. Resources typically go to customer facing applications and processes first. Over time, intercompany process improvements can continuously be bypassed by more pressing integration efforts. As a result, you’ll have an uncontrollable maze to navigate for basic corporate status information, and an executive team unable to effectively leverage assets of acquisitions.
Legacy system maze could also be a result of giving your subsidiaries free hands in selecting and using their own ordering, billing and accounting systems. Without a serious integration effort, these systems will make it difficult for you to manage the finances of your corporation.
Intercompany process challenges are difficult to overcome, and process automation requires consistent and costly maintenance. Just think about all the organizations involved – Sales, Purchasing, Accounting, Treasury, Tax, Transfer Pricing, Controlling – in an end-to-end intercompany process. Multiply that with the number of companies in your corporation, and you’ll discover a large optimization and automation project ahead of you.
In an effort to fix intercompany problems, you could end up creating band aid solutions that complicate integration further. Your common processes, workflow tools, dispute handling instructions, reconciliation tools, and deadlines for postings, adjustments and reporting could unnecessarily complicate things further. As a result, you might find yourself asking the question: shouldn’t this be easier within ONE corporation!?
How Do You Know If You Have an Issue with Poor Intercompany Processes?
World class intercompany processes are highly automated, and require very little manual intervention. If your intercompany processes have one or more of the following characteristics, you could benefit from further optimizing and automating your processes:
- Your team is heavily involved in manual work to clarify disputes
- Your processes are manual processes, and you utilize emails and excel sheets
- You spend considerable time on reconciliations and eliminations
- You don’t have real time visibility to balances
- Your netting and settlement processes are manual
- You don’t have real time payment data available
- You’re not able to analyze risks due to lack of visibility to balances, for example the impact of trade wars and tariffs
How to Fix Intercompany Processes
If your team is forced to spend a lot of time clarifying disputes, reconciling and eliminating transactions, netting and settling payments, and analyzing data, it might be a good time for you to think about blockchain based intercompany solutions. If your team uses multiple tools to accomplish their intercompany tasks, blockchain could help you reduce the applications you use. Blockchain by its very nature fixes the root of your problem, as it removes the need for any short term band aids and multiple tools. In summary, blockchain based intercompany solution will
- Allow sharing of data with you and your counterparties
- Reduce disputes and discrepancies, as transactions are added to the ledger simultaneously only when approved by both you and your counterparty.
- Reduce reconciliations, transactions automatically match, reconcile, and have full audit trail
- Provide you real time company balances
- Automate netting and settlement between you and your counterparties
- Reduce your payment transaction fees due to automatic multilateral settlement
- Provide you real time payment information, and even payment processing
Blockchain based solutions are the future for intercompany transaction processing. With blockchain based solutions, you can achieve real automation, allowing your finance, treasury and tax organizations to concentrate on essential tasks. To learn more about blockchain based intercompany tools, check out our prototype Abiko, and schedule a live demo to see it in action.