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Take the Complexity and Risk Out of Intercompany Transactions

Q&A with Susan Parcells and Susan Hols of BlackLine

by Susan Parcells and Susan Hols | insiderPROFILES, Volume 7, Issue 1

January 6, 2016

Companies that operate multiple ERP systems and have international operations continue to be challenged with monitoring cross-entity and intercompany transactions. The risks of waiting to see discrepancies in intercompany billing until month-end close are substantial, ranging from inventory write-offs, top-side adjustments, wasted resources, and financial integrity risk, to major financial exposure. Discover how to simplify these intercompany transactions and gain better control, visibility, and security around these processes from BlackLine experts in this excerpt from a recent SAPinsiderOnline Q&A.

     
    

Companies that operate internationally with multiple ERP systems continue to be challenged with monitoring cross-entity and intercompany (IC) transactions. The risks of waiting to see discrepancies in IC billing until month-end close are substantial, ranging from inventory write-offs, top-side adjustments, wasted resources, and financial integrity risk to major financial exposure.

As businesses execute more acquisitions and mergers as well as expand globally into different countries and markets, the complexity of IC accounts continues to grow and has necessitated the need for better control, visibility, and security around these processes. During a recent SAPinsider Online Q&A, Susan Parcells, Director of Finance Transformation, and Susan Hols, Principal Solutions Consultant, at BlackLine shed light on how to simplify these transactions.

The following is an abridged version of some of the live reader questions they fielded. The full transcript is available on SAPinsider Online. 

     
     

Q: Can you provide a brief overview of intercompany (IC) transactions?

Susan Parcells (SP): An IC transaction occurs when one division, department, or unit of an entity participates in a transaction with another division, department, or unit of the same entity. Such transactions occur for a variety of reasons. For instance, a company may sell inventory from one division to another division, or a parent company may loan money to one of its subsidiaries. Transactions occur not only between the parent company and a subsidiary, but also between two or more subsidiaries and even between two or more departments.

Q: What are some general best practices for SAP users dealing with IC transactions?

SP: The most important suggestion when dealing with IC transactions is to establish clear roles and authority around entering into and approving IC transactions. It’s also important to have visibility into the due-to/due-from accounts. Other suggestions include using technology to have a more systematic method and assigning accountability to ensure that the IC accounts are clean.

Q: For companies with multiple entities of which more than 50% are cased outside SAP software, do you see opportunities to reduce manual reconciliations?

Susan Hols (SH): Yes, absolutely. BlackLine provides the ability to bring multiple entities for disparate systems into one centralized workspace. Clients with legacy ERP systems or multiple ERP systems can standardize on BlackLine Intercompany Hub the posting of all IC transactions in a controlled and templated way. Pre-posting validation rules ensure foreign exchange (FX) postings are not rejected from the target accounts due to entry errors. Users can create, review, approve, and certify IC journal entries, which can then be posted to the entity’s general ledger clearance accounts.

Q: How does BlackLine achieve IC transactions with multiple controlling areas?

SP: BlackLine has a hierarchy structure that allows companies to set up multiple levels, whether they are based on multiple companies or multiple locations. As the rules are set up for the IC transactions, a company can either allow or disallow transactions to take place between those various entities or areas. Expanding this even further, if a company has multiple SAP instances and even different ERP systems, BlackLine’s solution can retrieve information from them all, allowing for one central repository and better visibility into transactions crossing over multiple ERP systems or entities.

A text tab delimited file is created and sent to BlackLine on an automated, scheduled basis through the client’s SFTP site. SAP HANA can be connected through data extraction in BlackLine’s standard import templates through SFTP.

Q: Is this hub a custom-developed SAP add-on? Can you provide an example of how the solution would be used?

SP: BlackLine is a separate software-as-a-service (SaaS) application that works with SAP ERP to handle financial close activities such as IC transactions, settlements, and reconciliations. BlackLine’s Intercompany Hub solution handles IC transactions as requests where they will be validated, supported, and properly routed for the appropriate approvals. Once both sides of the transaction are in agreement, BlackLine will process the journal entries via configurable rules that will send journal entries to a single SAP ERP system or to multiple ERP systems for posting.

Because the agreement occurs in the front end and the entries are booked automatically, companies can avoid all the manual labor involved with tracking down discrepancies and one-sided bookings (which is typically done in the month following the original booking).

Q: For organizations with many intercompanies, what is the best practice for dealing with period-end (month-end and year-end) FX translation in SAP ERP? 

SH: BlackLine fully supports multi-currency, including all ISO currency codes. Users initiating transactions can select the required currency based on the entity or company code, for example. Or the currency code can be predefined based on the transaction type selected.

Q: How is the IC hub charged — by transactions, by company codes, or by instances connected? And how long does it take to implement?

SH: Various types of IC transactions can be configured in BlackLine with specific rules predefined for each transaction type, including validation rules to ensure charges are properly allocated by company code, profit center, and so forth.

Implementation time will depend on client resources, such as the number of IC templates and ERP systems, which will determine the number of journal templates and extracts to be built. On average, an implementation will run from six to nine months.

Q: How will an entity take care of entries initiated but not yet approved?

SP: A transaction that has not yet been approved will be visible to the users, allowing them to see what is outstanding as they work toward finalizing the organization’s financials. The idea is that throughout the month, as users enter these IC transactions, the appropriate people (i.e., those with permission) work through the usual questions and discussions that often happen when dealing with IC transactions, such as the date of the recording, currency type, and so forth. This workflow not only ensures the appropriate people are entering into and approving these transactions, but also that they address them throughout the month and are not scrambling at the end of the month to settle all of the IC transactions.

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Susan Parcells
Susan Parcells

Susan Parcells, BlackLine’s Director of Finance Transformation, has held various accounting positions as both an auditor and manager. Susan’s areas of focus are on improving financial close processes, enhancing controls around those processes, and helping accounting teams reduce their workload to focus on other value-added analytics activities. She can be reached at susan.parcells@blackline.com.


Susan Hols
Susan Hols

Principal Solutions Consultant
BlackLine

Susan joined BlackLine in 2011, and her primary areas of interest and practice lie with process improvement and automation. Her role at BlackLine incorporates these focuses and allows her to work with prospective and existing clients to demonstrate how BlackLine can help them in these realms. Prior to joining the BlackLine team, she spent five years as a management consultant. While consulting, she worked on projects related to system implementation and upgrade, internal and external audit, financial planning, reporting, and accounting. Susan is a certified internal auditor (CIA) and a certified BlackLine implementer. Overall, she has over 20 years of auditing and accounting experience including tenure at Wells Fargo, Ernst and Young, LLP, GMAC-RFC, Allianz, and UnitedHealth Group. She can be reached at susan.hols@blackline.com.



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