Intercompany Reconciliation: 3 Ways to Overcome the Challenges

Intercompany Accounting has always been a highly important process for the parent company to get done right. Though expanding the business is seen as a success, managing the accounting and finance side is not an easy job. Companies have always found the work to be significantly challenging and risky, and Intercompany Accounting is one of the top struggles. If done wrong, the company can deal with serious issues and errors in their final financial statements.

Challenges in intercompany reconciliation

Despite the importance of the work, Intercompany Reconciliation is the pain in the neck to most companies. The process takes so much time, effort, and is very labour intensive. Not to mention, only senior accountants can meet up to standards to do the job.

It is no surprise how Deloitte calls it “the mess under the bed”, while most experts agree that the work needs to be taken care of with extra cautions – as it can cause major issues to the finance team.

Read more: Financial consolidation – Dealing with intercompany transactions

Many companies try to apply very complex solutions, such as ERP systems for core functions, but they do not have the necessary specialised skills to serve intercompany transaction management and reconciliation.

Moreover, these companies don’t understand that in order to change, it is not only about the automation but also the way to do the process as well as the people who do it. These misunderstanding can lead to disarrays and leave the business stuck in the mess unresolved.

The solutions to improve intercompany reconciliation

Although there are multiple areas for you to work on, here are 3 tips for your company to improve on your Intercompany Reconciliation:

1. Switch from monthly reconciliation to continuous close

Most companies do their reconciliation by the end of the month. True, the process is not easy, and when that time of the month comes, every accountant gets frustrated with it. In fact, this is where everything went wrong. Having to track back all the transactions made in the last four weeks, match them to each account while trying to contact each business’s accounting department make the cycle significantly difficult.

The one solution that you can apply is continuous close. Continuous close or continuous accounting is a new approach, where you practice the closing tasks on a day-to-day basis rather than an accounting period.

While the memory is fresh, the work gets a lot easier. Your team can definitely avoid the monthly exhaustion and stress while able to achieve the successful monthly close. More and more organisations are adopting this approach, as it creates many advantages to the finance team.

2. Enhance reconciliation process clarity

Before reaching the parent company’s accounting team, the transactions first need to be recorded and categorised in the subsidiary companies. Sometimes, the subsidiaries just do things in different ways without notifying others. And when reports reach the parent team – they become a huge mess! No one understands how the work was done, and you would have to go over it again and again until there was no knot left on the rope. Data cleaning is not an easy job that takes little time and resource. Thus, it is best to get it done correctly right from the start.

Another issue that can occur if there is no visibility on the process is reconciliation. Many companies often don’t clearly state what intercompany reconciliation should look like when complete. Countless of times, unreconciled transactions just burst out all of a sudden. Parent company definitely needs to make sure to write down the criteria of finished work, so each subsidiary can look at the list and tick the boxes. More unticked boxes, more work, less happy workers.

Read more: Is financial planning still relevant in a VUCA world?

3. Using automation tools

Doing Intercompany Reconciliation manually is highly inefficient. With all the document-recording, searching and matching, the process can take forever, and nothing can even guarantee that the result is 100% precise. On the other hand, the miscommunications or misunderstandings between the companies while operating the task can cause bottlenecks, or worst – lead to serious issues that affect the whole company.

Some end-to-end systems, such as ERP, may be deployed, but they can potentially overcomplicate matters. Your company needs to adopt a dedicated system for intercompany transactions management and reconciliation such as Infor d/EPM.

To learn more about Intercompany Reconciliation and how to improve the process using automation tools, check out our resource below.