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Could improved intercompany financial management make your supply chain more resilient?
Tue, 31st Jan 2023
FYI, this story is more than a year old

Is your company putting more effort into fortifying its supply chain in the wake of the Covid crisis? If you answered in the affirmative, then join the club. Here in Australia and around the world, the pandemic was a huge wake-up call for businesses and organisations of all stripes and sizes. 

After decades of relying on highly optimised, just-in-time models, the risks associated with doing so became all too apparent. So did the benefits that can accrue from solid relationships with trusted suppliers and/or a substantial inventory of components or stock at hand.

Having experienced an extended and ongoing scramble to secure vital equipment, components and stock – the average wait time for a new car in Australia, for example, is now 159 days, according to comparison site – many decision makers have taken a long hard look at their dependency on third parties and sought to minimise the risks they face if supplies don’t arrive as expected.

And for businesses that form part of a multinational organisation or conglomerate, it’s made doing business ‘within the family’, wherever possible, significantly more attractive. 

Buying from a related entity means your orders are likely to be prioritised over those of external customers. If other suppliers are experiencing stock shortages or disruption to their own supply chains, that’s a boon that can make it possible for your organisation to maintain business continuity and protect the bottom line.

Intercompany challenges

But while making it a policy to source internally first sounds like a no-brainer, doing so can open up a financial can of worms, unless there are robust intercompany systems in place. 

In many organisations, there are not. While external trade relationships typically incorporate well negotiated and enforced contracts, and are underpinned by advanced logistics technology – think resource tracking, inventory management and global payment and receivables systems – that’s not always the case for intercompany transactions.

Very often, they’re not processed with the same rigour. Non-trade transactions at the general ledger level are common, as are large, poorly defined balances. Transactions may be posted at different times and in different accounting periods, with commodity price fluctuations and tax leakage at either end of the result.

It’s all too easy for intercompany accounts to be knocked out of balance – and for finance and accounting teams to have to spend many frustrating hours trying to set them straight. 

Using intercompany financial management to solve the problem 

It’s not an insoluble problem, however. Adopting a standardised process underpinned by an automated intercompany financial management solution can lead to clarity and transparency, and help to get the books back in sync. 

Choose a platform that can service an eco-system comprising multiple invoicing, Treasury and ERP systems, and you’ll find it becomes possible for intercompany transactions to be posted promptly and accurately. 

By creating an intercompany visibility layer that provides oversight of every ERP system in the eco-system, related entities are able to track those transactions across their entire lifecycle, from order placement to delivery and payment. 

The result? The same sort of clarity and rigour that characterises relationships with external suppliers and the elimination of friction and inefficiency from the process. Procurement and finance teams are able to make more informed trade decisions and optimise financial operations, including cash flow management, foreign exchange and tax planning.

Furthermore, once individual transactions and balances are aligned and visible, settling intercompany balances becomes a simple matter. And, thanks to automation, those settlements can take place as often as daily, rather than weekly or monthly or on an ad hoc basis, as they may have done in the past.

The bottom line 

For many conglomerates, the Covid crisis highlighted the compelling case for doing business internally. Automated intercompany financial management software makes it possible to conduct transactions visibly and efficiently and achieve the intercompany clarity that may have been sorely missing to date. If supply chain resilience and an optimised financial position are priorities for your group of entities, it’s an investment that will pay dividends in all sorts of times.