Taming intercompany complexity with smarter automation

In brief

• Multinationals are grappling with an increasing number of jurisdictions and new regulations.
• Legacy systems are not equipped to handle the current demands of finance.
• More sophisticated technology solutions can effectively streamline the closing process.

Every day, multinational companies execute thousands of intercompany transactions — quiet, yet critical, exchanges that underpin the global economy. With roughly 70% of global business flowing through these enterprises, the stakes are high.

Recent research from the Organisation for Economic Co-operation and Development estimates that half of all global trade moves through value chains controlled by multinationals, amplifying the exposure to risk and manual error finance teams are managing. As these businesses expand, so do their operational challenges: more legal entities, more currencies, more regulations. Yet many still rely on outdated systems and disconnected processes to manage the growing complexity.

Today’s finance and tax teams are being asked to move faster, deliver more insight and manage greater risk — often while still leaning on legacy platforms. These systems weren’t built for the scale or complexity of today’s intercompany operations. They struggle with multi-entity settlements, foreign exchange and noncash offsets, leading to delays, errors and a lack of clarity.

Manual workarounds, fragmented systems and inconsistent policies don’t just slow down finance teams — they also expose the business to real risk. Financial discrepancies, compliance gaps and missed opportunities for cash optimization become more common, not less.

But companies that take action now are setting themselves up for stronger governance, faster closes and smarter use of global cash. By leveraging automation and integrated technology solutions, companies can streamline intercompany processes, increase visibility into potential issues and track their compliance.

A perfect storm

Multinational companies are facing a perfect storm of challenges to their intercompany finance management. Legacy systems struggle with multi-entity settlements, foreign exchange, and non-cash offsets, leading to delays, errors and limited control over financial operations.

Key challenges include:

• More entities, more jurisdictions, more rules
• Manual workarounds that introduce risk
• Lack of visibility across intercompany balances
• Growing regulatory scrutiny on transfer pricing and tax treatment
• Disparate ERP systems
• Fluctuating currency rates
• Need for tax compliance across different jurisdictions

These aren’t just accounting issues — they also impact liquidity and tax exposure. When intercompany operations get messy, it holds the whole finance function back. In fast-moving markets, waiting until the month-end close to discover an issue is too late. With real-time data, finance teams can spot mismatches early and avoid fire drills at close.

Not just faster, better

Multinationals need to think beyond faster reporting to making better decisions. 

Where is cash being held up? Where are there misalignments? What’s the true exposure across entities? These are questions real-time visibility can help answer.

Without that perspective, the CFO doesn’t know if the numbers are accurate. This lack of clarity can lead to significant risks for organizations, making it imperative to invest in solutions that provide a clear overview of intercompany transactions.

The answer isn’t more people or spreadsheets. It’s about centralizing oversight — aligning one version of the truth across all entities.

Intercompany transactions are fraught with complications. When organizations operate with multiple ERP systems, clearing those transactions is cumbersome and slow. The delay can lead to unwarranted disputes over currency conversions and tax obligations, particularly when different countries have varying requirements for invoicing and tax reporting.

Example: if a company in the US agrees to exchange services with a partner in Poland, discrepancies may arise regarding the currency used for transactions. The US entity may assume the transaction is in dollars, while the Polish partner expects euros. This misalignment can complicate settlements and increase the likelihood of disputes.

Finding the exceptions to the rules

Traditionally, multinational organizations might spend days reconciling hundreds of thousands of transactions, which can extend the month-end closing period and delay earnings releases.

Automating these processes allows companies to streamline operations, managing the churn throughout the month and focusing only on exceptions rather than sifting through every transaction. This shift both improves efficiency and increases visibility into cash flow and compliance.

Compliance is a critical concern for multinational corporations, especially with the increasing demand for Base Erosion and Profit Shifting (BEPS) reporting. This requirement mandates that companies report intercompany tax-related transactions on a country-by-country basis.

By automating these processes, organizations can ensure they are compliant with local regulations, potentially saving on tax burdens and avoiding penalties.

Real-time settlement of transactions can further mitigate risks associated with currency fluctuations. By moving towards a more immediate settlement process, companies can better manage their cash positions and reduce the complexity of intercompany transactions.

As the volume and complexity of intercompany transactions continues to rise, organizations with multiple ERPs are beleaguered and scrambling to keep up with evolving regulatory requirements.

Many countries are now mandating that invoices for intercompany transactions be shared with tax authorities in specific formats. This shift demands technology solutions that can handle a high volume of transactions and the associated complications.

No need to risk it

More sophisticated solutions have emerged. A tailored, scalable approach to finance automation can streamline intercompany exchanges and enhance financial governance.

The EY-BlackLine Alliance can address these complexities by providing a comprehensive solution that enhances visibility and control over intercompany processes. By influencing product development and focusing on client needs, EY teams are positioned to offer a differentiated service in the market.

The integration of automation and compliance solutions is essential for multinational corporations navigating the complexities of intercompany transactions. With the right tools, organizations can enhance efficiency, track compliance and gain better visibility into their financial operations. As the landscape continues to evolve, the need for improved intercompany processes will only grow, but the answers are available.