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SAP Intercompany Financial Hub by BlackLine and SAP S/4HANA Intercompany Matching & Reconciliation, How they work together

Elizabeth Milne, Accounting and Financial Close Expert, SAP

Molly Boyle, SAP Solutions Expert, BlackLine

This blog is a continuation of our series on how SAP Solution Extensions by BlackLine complement other SAP functionalities. In this edition we’ll discuss how SAP Intercompany Financial Hub by BlackLine (SAP IC Financial Hub) complements SAP S/4HANA Intercompany Matching & Reconciliation (ICMR). This blog will be most useful if you’ve read the following blogs:

  1. SAP ERP solutions have Intercompany Reconciliation functionality (ICR). Why would I need SAP Intercompany Financial Hub by BlackLine?
  2. The Next Generation Intercompany Solution: Intercompany Matching & Reconciliation

Our earlier blog, referenced above, provided a definition and overview of the intercompany process and discussed how it’s traditionally been approached (hint: it’s very manual and often highly complex). We highlighted that much of the complexity surrounding intercompany processes is a result of frequent changes in entity/organizational structure and/or the many disparate systems and processes across the enterprise.

We then focused on SAP’s solutions for intercompany, which include intercompany reconciliation functionality (ICR) and SAP IC Financial Hub. Our earlier blogs discussed how both solutions deliver intercompany reconciliation reports for both SAP S/4HANA and ECC, however the SAP S/4HANA Cloud 1908 and OP 1909 releases now include SAP S/4HANA Intercompany Matching & Reconciliation (ICMR). So how can they work together?

First, let’s be clear, there is overlap in the functionality of both these solutions. But they are also complementary. Intercompany accounting is a tricky and complicated subject, and depending on your intercompany activity (for example – trade vs non trade intercompany transactions), and your ERP landscape, the best way to automate and simplify your processes will be specific to you and your organization.

End-to-end Intercompany Process

There are many types of intercompany transactions. Trade transactions are amounts owed by customers for goods and services sold in the course of a firm’s ordinary business (trading) activities, including all accounts receivable and all notes receivable resulting from trade activities (i.e. Sales/Purchase Orders & Outbound/Inbound Assets). Non-trade transactions are amounts due for payment to an entity other than its normal customer invoices for merchandise shipped or services performed (i.e. Internal Consulting, Marketing Programs, Travel & Entertainment, Legal Initiatives, Shared Employee Resources, Asset Transfers, R&D, Dividends Payable, Bonds Payable)

Non-trade intercompany activities tend to be more manual to manage, however in a heterogenous ERP environment, intercompany trade activities can also pose many of the same challenges.

The below diagram outlines a typical intercompany process from start to finish. It should be noted that reconciliation is only a piece of the end-to-end process.

Preparation and record

Before an intercompany transaction can be executed, there should be agreement on the terms and conditions. Often contracts are involved. The management of this process is often manual with emails and contracts stored in share drives. SAP IC Financial Hub can house the back and forth discussions and store agreements and workflow approvals.

Once intercompany activity is agreed upon, SAP IC Financial Hub can generate statutorily compliant invoices and post the adjustments to the disparate systems. These postings then can be collected for reconciliation.

Specifically, SAP IC Financial Hub provides a proactive approach to governing the end-to-end process for intercompany transactions, where entities can agree on intercompany activity and requirements before the data is posted to the source ERP.

SAP ICMR does not address activity before posting to SAP S/4HANA.

Intercompany Reconciliation

In order to perform an intercompany reconciliation you first need to define what accounts and what transactions you are going to match. Determining what to match with what gets complicated quickly. Advanced matching is often required (“1:1”, “1:Many” vs “Many:Many”, Matching on multiple dimensions (e.g. Profit center or segment).

Running reconciliation reports can be further complicated by multiple systems source systems capturing data at different levels of detail.

This is the biggest area of overlap as both SAP ICMR and SAP IC Financial Hub can address these requirements, see ERP landscape section at the end of this blog.

 

Mitigation and correction

Reconciliation reports highlight out of balances that need to be investigated. Based on why the data is out of balance, in many cases you can create business rules to automatically address certain mis-matches. Both SAP ICMR and SAP IC Financial Hub can create these types of business rules, see the ERP landscape section toward the end of this blog to understand how to determine which solution would best help you address your requirements.

There will be cases where certain mismatches cannot be identified automatically with business rules. These manual mismatches require an accountant to research outside of the ERP system what went wrong. Disputes between two parties can lead to e-mail exchanges and spreadsheet attachments, complicating the tracking of transactions and audit trails and risking compliance with government regulations or accounting standards.

Both ICMR and SAP IC Financial Hub provide collaboration, advanced business rules and work flow to resolve issues. SAP IC Financial Hub allows provides a complete audit trail. Customers commonly provide auditor access to the SAP IC Financial Hub so that evidence, supporting documentation, and workflow can be easily accessed, reviewed and tested.

Multiple time zones, countries, currencies, and changing exchange rates further complicate the process and can be simplified.

Netting and Settlement

Depending on the account, or intercompany transaction type, the netting and settlement could be handled by SAP Treasury Solutions or SAP IC Financial Hub. SAP IC Financial Hub includes both bi-lateral and multilateral netting capabilities to allow payments to be aggregated across entities, reducing bank fees and costs across the organization. Entity hierarchy governance allows the business users to control an entity’s netting capabilities based on country by country regulations.

SAP IC Financial Hub also gives organizations the ability to store and send payment and transaction information to downstream treasury management systems for payment facilitation. FX gains and losses that need to be recorded after settlement are easily matched to originating transactions and adjusting entries are automatically created and posted back to originating systems, closing out the intercompany lifecycle.

SAP Treasury solutions can address these requirements as well.

 

Consolidation and Elimination

Elimination calculations during financial consolidation are complicated by each previous step listed here leading to inaccurate or incomplete data. Consolidation systems can help automate intercompany eliminations but rarely contain the level of detail to accurately support traceability for statutory and tax reporting purposes.

SAP S/4HANA for Group Reporting can consolidate financial data and eliminate intercompany activity based on business rules. With global intercompany dashboards and reporting, easily aggregate intercompany balances and create resulting intercompany elimination entries to be sent on to consolidation systems for entry.

 

ERP Landscape

Next let’s understand how much of your intercompany data is in SAP S/4HANA? The answer to this will help you understand which solution you can leverage for what.

Scenario A: None of my Intercompany data is in SAP S/4HANA. Two options

  1. SAP IC Financial Hub can address requirements, reviewed above, that span across the whole end to end intercompany process. Intercompany data from multiple ERP systems can be loaded to SAP IC Financial Hub.
  2. A standalone SAP S/4HANA system could be set up, intercompany data from multiple ERP systems could be loaded at the balance level and ICMR could be leveraged for matching and reconciliation.

Scenario B: All of my intercompany data is in SAP S/4HANA

  • I have one instance of SAP S/4HANA which contains all my intercompany data
  • We use Central Finance to collect all our intercompany data

In this scenario SAP IC Financial Hub can add value with:

    • Upfront collaboration and agreement on terms and conditions, transfer prices, and tax treatment
    • Storing contracts, documents, and a complete audit trail
    • Coverage of all related substantiation and workflow
    • Management of disputes when manual mismatches are identified
    • A proactive approach to avoid reconciliation mismatches – that is designed to work with multiple backend accounting systems

Scenario C: Some of my intercompany data is in SAP S/4HANA

This is the most complicated as you really need to dive into where your intercompany data is stored. If most of the data is in SAP S/4HANA, there is functionality with ICMR to load additional data from outside systems. With file upload or via inbound API, transaction or balance level data can be loaded to SAP S/4HANA. If you can get all your intercompany data loaded into SAP S/4HANA, see B above. Else consider A.

In summary

The end-to-end intercompany process is complicated and has many steps. Depending on what your intercompany requirements are and what your ERP landscape looks like will depend on what solution is right for you. SAP ICMR can collect data, run intercompany reconciliation reports, and automate most out-of-balances. SAP IC Financial Hub is an end-to-end intercompany business-driven cloud solution. It can complement SAP ICMR with extended automation, auditability, workflow and documentation.

 

Other Blogs In This Series

There are several common questions about SAP’s Solution Extensions by BlackLine and how they complement and extend other SAP solutions. Check out these blogs for the answers:

 

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