Intercompany Dispute Management: Take the Reins

Dispute management is one of the most time-consuming and aggravating processes in the intercompany accounting sphere. When data submitted by one entity doesn’t match with that of another — an issue that gets exponentially multiplied considering the thousands of transactions intercompany teams process every quarter — it’s easy to see how the resulting investigative work to reconcile mismatches can suck up a lot of oxygen. It can add days to the close and lead to counterproductive conflicts.

Add to those challenges the fact that many organizations use outdated, manual methods to manage disputes and comply with ever-evolving tax regulations. It’s no wonder that stakeholders are worried about wasted time and cost resulting from inaccuracies and inefficiencies that are baked into dispute-management processes. In a recent Dimensional Research/BlackLine survey of intercompany stakeholders, the top issue reported among staff (60%) was demotivation related to negative responses from business stakeholders as a result of allocation of reconciliation inquiries.

Fortunately, these issues are avoidable. What’s more, there are ways to streamline conflict-resolution processes and prevent disputes from wreaking havoc on intercompany operations. However, to get there, intercompany finance teams must adopt a fresh view of this vital intercompany function.

To streamline conflict-resolution processes and prevent disputes from wreaking havoc on intercompany operations, teams must adopt a fresh view of this vital intercompany function.

Conflict is never good, even if it’s over just one transaction. Whether a friction point is caused by someone entering the wrong part number, applying incorrect shipping terms, or failing to notice an error on an invoice, a failure to properly manage disputes can lead to significant reporting issues, most notably at the statutory and management level where intercompany isn’t eliminated.

A mistake many multinationals make is to adhere to a strategy that mirrors the way they do business with third parties, but they need to be more meticulous. Traditional third-party transactions emphasize being paid over the details of the transactions themselves. Intercompany operations are much more complex, and dispute issues can reverberate throughout the intercompany ecosystem and impact functions downstream. How the two parties account for these transactions is essential. The underlying details are critical to avoid problems later in the process.

How does this translate to strategy? It means widening the scope of dispute management and approaching it in a holistic way. Instead of flagging issues at the close, organizations should scrutinize the entire intercompany ecosystem for conflicts, starting as far upstream as the “handshake” point.

This proactive, holistic approach can be broken down into three key best practices: putting in place good policies, optimizing processes, and adopting best-of-breed technological solutions.

Efficient dispute management begins by establishing robust policies, ones that dictate how intercompany operates from both the buy and sell side of the business. Some areas to examine include:

• Delegation of authority. The organization should verify what roles are authorized to arbitrate material disputes based on the type of transactions involved and whether individuals sit on the “buy” or “sell” sides of trading relationships.

• Thresholds and workflows. These policies identify the processing of transactions on a granular level, such as automated adjustments on immaterial disputes to the seller.

• Trading relationships. There should be rules regarding trading and settling with various entities, with strong governance on trading relationships between countries that are highly restrictive.

A problem that many multinationals run into is that legacy processes aren’t automated or set up to be sustainable or scalable. The result is that intercompany teams waste time trying to make do with manual processes, a surefire way to drain top talent and limit scalability as the business and regulations evolve. Therefore, the second component of intercompany dispute management is to ensure that processes are streamlined throughout the journey of every single transaction. 

To achieve this:

• Processes must be centralized and standardized, ideally on a global scale, with an emphasis on managing with a center-of-excellence mindset

• Accounting teams must use identical processes to extract data to ensure that disputes are correctly identified and rectified on the spot

• All stakeholders should have visibility and access to intercompany agreements, invoices, workflow approvals, transfer pricing documentation, and other legal substantiations prescribed by tax-compliance policies

Just as legacy processes are not up to the task of minimizing disputes, many multinationals are struggling to work with disparate, disconnected ERPs that can’t keep up with expanding networks and tax requirements. Instead, the technology must fully automate the end-to-end transaction lifecycle across all trading relationships and ERPs.

There is only one way to meet these technological objectives: adopt a best-of-breed intercompany solution that’s designed to prevent dispute headaches through a proactive approach of streamlining processes from the point of data entry through settlement and reporting.

BlackLine’s intercompany solutions cover the end-to-end lifecycle of intercompany, from transaction creation through balancing and final settlement, empowering multinationals to boost operational efficiency, effectively manage tax compliance, drive margin improvements, and optimize working capital.

Disputes will always occur, but when organizations address issues as far upstream as possible and take a proactive approach to intercompany dispute management, they can “destress” the close. Teams work from a place of data confidence and get back many hours of time they can put toward meaningful tasks. Such a strategy ensures long-term intercompany accounting success, as it shores up a multinational corporation to be able to weather expected and unexpected changes, from personnel expansions and reductions to new tax regulations to mergers and acquisitions.