New Analyst Paper: Intercompany Financial Management

What is IFM? 

Intercompany Financial Management (IFM) is a discipline for handling multi-departmental transactions within a company to maximize staff efficiency, accounting accuracy, and global tax compliance. Automating this process can be incredibly difficult as it is used by large multi-national companies with a multitude of processes and regulatory requirements.

Factors that Drive IT, Accounting, and Tax Complexity

#1: The number of ERP systems and instances used by corporations.

Ventana Research found that two-thirds of companies with more than 10,000 employees have ERP systems sourcing from multiple vendors. This type of record-keeping puts a major strain on finance and accounting departments. 

#2: Corporate structural complexity

Many large corporations have several layers of stakeholders including officers, investors, and partners making it difficult to see who the key decision-makers are. In some companies, this group includes thousands of separate entities all with their own unique set of tax and regulatory stipulations.

What IT Framework is Required to Best Perform IFM

Ventana Research revealed that 65% of organizations now use software to handle reconciliations. Executing IFM well requires a multitude of steps and expert knowledge to best support global corporations. Multinational companies see the most benefits from IFM as they often utilize multiple ERP systems. 

While automation technology is important, it must still be monitored by skilled professionals trained in a variety of accounting and compliance disciplines. The following technological components should be in place when implementing IFM: 

  • Automated invoice processing
  • APIs & RPAs to support data movement
  • Processes for applying accurate global tax 
  • A detailed global billing and payments functionality
  • Data taken from multiple ERP systems that tracks intercompany transactions

How IFM Impacts Overall Corporate Performance  

Relying on various ERP and other accounting systems to handle the bulk of intercompany transactions can lengthen accounting close time by as much as a full business week. IFM systems compile all transactional data and monitor regulatory and tax compliance. Having IFM in place supports a company’s bottom line by: 

  • Reducing workload
  • Minimizing legal risk 
  • Upgrading financial control
  • Improving transaction speed
  • Optimizing accounting accuracy
  • Streamlining post-merger financial processes
  • Allowing HR, sourcing, and supply chain managers to better manage costs

IFM is particularly beneficial to tax departments because it: 

  • Detects and prevents tax leakage
  • Improves audit defense capabilities
  • Allows for better management of tax costs
  • Effectively manages global tax compliance 

Future Trends That Will Affect Regulatory Tax Compliance 

Ventana Research predicts that by 2025, one-half of organizations with 10,000 or more employees will have implemented IFM to achieve tax, risk management, and financial close benefits. Additional accounting and tax requirements are likely to emerge in the coming years. As intercompany accounting becomes more complicated, automation technology will continue to be a crucial component for business efficiency.     

Download the complete white paper to learn more about Intercompany Financial Management and how it supports corporate processes and compliance. 

By Lindsey Burke June 24, 2021