How to make intercompany reconciliation easier with SAP ERP
With mergers and acquisitions in the globalization of the world economy, intercompany accounting has become more and more important. The fast increase in the number of entities and subsidiaries of organizations that operate on a global scale makes it more challenging for them to efficiently reconcile their intercompany balances. ERP systems, such as SAP ECC or SAP S/4HANA, play an important role in managing and streamlining intercompany processes within those organizations.
Organizations with international subsidiaries, that process payables and receivables, benefit from SAP’s Intercompany Reconciliation solution (SAP ICR). Today, the reconciliation of intercompany receivables and payables is one of the most time-consuming and challenging activities within the financial closing process.
The two main groups who would benefit from using SAP Intercompany Reconciliation (SAP ICR) solution are:
- The accountants in the subsidiary: because they need to ensure that their own documents from accounting transactions correspond to the documents of internal trading partners, they benefit from having a tool that allows easier matching of documents. This will avoid delays and disputes when payments are supposed to be processed.
- The accountants at corporate level: within SAP ECC or SAP S/4HANA, SAP Intercompany Reconciliation provides them with a central overview and check of the reconciliation results of all involved companies. This allows a better overview and bottle neck identification in the financial closing process.
In this blog post, I explain how SAP Intercompany Reconciliation helps you to ensure that cross-company documents correspond to one another.
Why you need a streamlined intercompany reconciliation process for your own business
The biggest problem today is that an invoice booked on the Accounts Receivable (AR) at one subsidiary is often not booked on time, correctly, or at all in the Accounts Payable (AP) of the internal trading partner. Possible causes for a mismatch can be e.g. the price of the goods, the calculated taxes, the quantity, etc. This gives rise to huge differences, which cause problems in the netting process and on the consolidated accounts. The usage of credit or debit memo´s, a write-off of the difference or a force match are possible solutions for this problem.
How SAP Intercompany Reconciliation (SAP ICR) helps you improve your own intercompany accounting process
The SAP Intercompany Reconciliation tool is created for use in Financial Accounting. It provides a periodic control of accounting documents within your corporate group and therefore streamlines your intercompany accounting process.
In the standard functionality, SAP Intercompany Reconciliation (ICR) selects documents per SAP system and client. It is also possible to integrate external data into the reconciliation process. In order to avoid currency conversion differences, the documents are reconciled in the transaction currency.
The main goal of SAP Intercompany Reconciliation is to establish that intercompany documents from accounting transactions within your corporate group correspond to one another. If the reconciliation process is successful, this will ultimately lead to reduced differences in corporate group consolidation.
SAP ICR has features on board to check that documents have been correctly assigned and to help you find corresponding documents easily and to make additional assignments.
Since the SAP Intercompany Reconciliation solution operates on the level of companies and partner companies (trading partners), it gathers data from Accounts Receivable and Accounts Payable invoice level detail from your SAP ECC or SAP S/4HANA system and lets you do a periodic matching analysis. It gives you the chance to correct before month-end close, this obviously reduces the differences at month-end. Documents can be matched automatically and manually with standard or customized rules for the reconciliation.
It is important to be aware that SAP ICR is an analysis tool. It does not correct the problem at the source but can initiate a dispute. Posting corrections are not made in the original system by the standard functionality. The tool is created to uphold constant control and can be run at any time. This means that the deadline pressure, which normally arises during month-end-closing and year-end-closing can be avoided.
The main benefits of the SAP Intercompany Reconciliation solution are:
- At month-end, money and time can be saved for corporate accounting and at every subsidiary
- At year-end, auditors will need to spend less time on intercompany reconciliation
- Companies can focus their time and resources on solving the problems and issues instead of collecting data
- It is a standard SAP solution, fully integrated within your current SAP ECC or SAP S/4HANA system
SAP ICR: supported intercompany reconciliation processes
There are three reconciliation processes supported by SAP Intercompany Reconciliation (SAP ICR):
- Process 001: G/L open items reconciliation: this process is selected if most of your cross-company receivables and payables are posted to G/L accounts. You can use this process to reconcile open items.
- Process 002: G/L account reconciliation: this process is selected for the reconciliation of profit and loss accounts. You can use this process to reconcile documents that are posted to accounts which do not have open item management.
- Process 003: Customer/ vendor open items reconciliation: this process is selected if most of your intercompany receivables and payables are posted to customer and vendor accounts. You can use this process to reconcile open items.
You reconcile accounting documents in the following order for the above-mentioned three processes:
- Data selection: the first step in the intercompany reconciliation process is data selection. This is an introductory step, in which you select documents across different SAP systems and clients and transfer the data to the reconciliation database. You could even integrate external data from non-SAP systems into the reconciliation process by uploading the relevant files.
- Data assignment: the second step in the intercompany reconciliation process is data assignment. In this step, SAP Intercompany Reconciliation automatically assigns data records.
- Data reconciliation: the third step in the intercompany reconciliation process is data reconciliation. In this step, the SAP system provides suggested assignments that can be customized. It is possible to change or complement these reconciliation records manually in the cockpit.
- Communication: it could be that you need to communicate with accountants or financial managers because of document corrections during the reconciliation of data. For this, the SAP Intercompany Reconciliation has many features on board to communicate with those persons through e-mail, notes, attachments and service requests.
- Correction posting: the contacted person can make the required solution to the problem found by SAP ICR.