This post covers some of the issues multinational companies face when employing a manual intercompany invoicing process. A manual monthly process at a large multinational corporation requires many intercompany team members to spend hundreds of hours a year.  This manual intercompany invoicing process touches hundreds to thousands of monthly charges and invoices. Manually touching so many documents, emails, and spreadsheets results in a high amount of errors.

As part of their daily operations, multinational corporations engage in a significant number of intercompany transactions, such as the exchange of goods and services. One of the most critical finance and accounting tasks is to perform intercompany invoicing and reconciliations every month. Monthly settlement of intercompany invoices helps to decrease the exposure to currency exchange risks and shows the tax authorities that these invoices are treated the same as outside invoices. (See OECD guidelines)

Corporations typically utilize a manual intercompany invoicing process performed by finance and accounting teams or a centralized services center. Manual invoicing requires a large intercompany group and takes hundreds to thousands of hours per year to maintain a monthly cadence. Team size and time spent are proportional to the volume of monthly invoices and the number of individual entities.

This manual process also results in a substantial number of errors and rework. Errors creep in during communication and data entry due to a high dependency on emails and spreadsheets. Tax calculations and currency conversions are additional sources of errors. Manual postings often result in out-of-balances due to the disconnect between the teams that post the AR and AP sides of the intercompany documents.

A typical outline for a manual intercompany invoicing process looks like this:

  1. Send the internal charges to be approved via email
  2. Enter the data from the email into a spreadsheet
  3. Consolidate charges between sending and receiving entities
  4. Calculate the markup on eligible charges
  5. Determine and apply the applicable VAT and withholding taxes
  6. Post the sales invoice to the AR side of the ERP system
  7. Generate the sales invoice and send it to the AP entry team and the receiving entity
  8. The receiving entity post the sales invoice as an AP document and attaches the PDF
  9. Intercompany invoice settlement starts
  10. Investigate and settle balance discrepancies
  11. Generate and send out monthly charge reports

Manual Intercompany Invoicing Process ExampleManual Intercompany Invoicing Example

This post covers the issues that multinational companies face when they employ a manual intercompany invoicing process. Depending on the number of entities and the volume of monthly invoices, a large intercompany team may be required to spend hundreds of hours a year to process the invoices.

We looked at an outline of a typical manual intercompany invoicing process. We noted that errors are plentiful due to the many touchpoints and bespoke calculations required. Additionally, these introduced errors result in out-of-balance issues that must be investigated and resolved. Our next post will look at transforming from a manual process to a fully automated one.

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