INTERCOMPANY BILLING OF SERVICES

In these days of globalisation, blurring industry boundaries and global talent crunches, it has become imperative for organisations to rethink their operating models and create new revenue streams. To prepare for this reality, organisations need to reinvent their back-office operations.

Has your business already expanded internationally? Has your organisation opened subsidiaries or multiple-related entities abroad? Congratulations! Great job!

Maybe you manufacture products in a separate related legal entity that supplies finished goods to your legal entity that distributes. Maybe you have a central order fulfilment operation that sources products from multiple related legal entities based on availability, or product characteristics. Perhaps you also have a central organisation that provides administrative, technical or other services for all other related legal entities and then charges them for such services.

Now you have opened new operations in new markets and centralised various services, you can substantially reduce costs and standardise processes and procedures. On the other hand, you will encounter an increasing complexity of your supply chain and/ or administrative services, posing new Intercompany Accounting challenges. And that’s great, because this is a result of increased business growth and expansion to multiple operating locations.

As such, a 2016 Deloitte survey among more than 4.100 accounting and finance professionals exposes the following challenges when implementing Intercompany Accounting:

• The provided intercompany services must be trackable and invoiced according to the actual costs incurred
• Legal conditions (e.g. regarding profit shifting) must be met
• Internal Service Level Agreements must be considered
• In international contexts, exchange rate issues come into play

Although insufficient accounting of transactions between various legal entities within a corporate group can lead to inaccurate financial reporting, yet less than 10% of the respondents to this 2016 Deloitte survey say their organisations have holistic, efficient, and well-communicated Intercompany Accounting frameworks.