Financial Management Series Blog #4: Intercompany Matching and Reconciliation
SAP S/4HANA Cloud sets the standard for traceability and automation of intercompany sales and stock transfer processes in Cloud ERP systems. And with our BlackLine partnership, SAP can offer a great solution for originating non-trade intercompany transactions as well, to make sure that the terms and conditions of these often-tricky arragements are agreed and documented. But what happens when the transactions flow through to the Finance team? These transactions, of course, have to be properly accounted for and eliminated for group financial reporting.
SAP released a solution capability of the Cloud ERP in 2019 that takes advantage of the design paradigms of SAP S/4HANA Cloud called Intercompany Matching and Reconciliation (ICMR):
- Data is not extracted to a separate system, which enables matching to be done continuously during the period.
- It is a fully automated process, including the posting of adjustments, with configurable workflow approvals if required.
- Business users oversee matching and reconciliation rules, not IT.
- It is designed for scale with in-memory technology that matches intercompany for the world’s largest businesses.
SAP’s legacy solution in this space, Intercompany Reconciliation, often resulted in a separate subledger that was fed only at period-end. In contrast, ICMR matches the AR and AP line items and other types accounts, e.g. P&L accounts, in SAP S/4HANA Cloud continuously, with matching runs scheduled regularly. This means at period end, you might not have much “open” intercompany to deal with at all. Smaller unmatched residual amounts can be assigned reason codes and workflow recipients, and/or auto-posted for full automation.
Some companies may have entities not accounted for in SAP S/4HANA Cloud. SAP’s Central Finance approach could be used to bring in transactional line-item data, or other technical options are available. In addition, SAP Group Reporting Data Collection can be used in a form-based approach to bring in data at the balances level for the Group Reporting data reconciliation case. Even the most complex projects can be supported.
Optimized visibility with SAP S/4HANA for Group Reporting
One of the main benefits of ICMR is that it provides unparalleled, detailed visibility for customers using SAP S/4HANA for Group Reporting. Once reconciliation is completed and the reconciliation-close snapshot created, the eliminations are triggered in SAP S/4HANA for Group Reporting, adding all of the reason code details available from the transactional system. Have you wondered what was driving differences? Are they driven by currency fluctuations? Now, your team – both local and corporate group accounting – will know.
Integration with SAP S/4HANA Advanced Financial Closing (AFC)
AFC is SAP’s entity close orchestration and visualization tool. Think of AFC as the central monitoring dashboard that shows you the status of your closing activities – whether they are approvals and sign-offs performed by your most senior accountants, technical routines and programs run in your Cloud ERP, or just bots.
SAP sees companies using AFC to monitor repeatable activities beyond the entity close – local statutory reporting tasks, for example, as well as intercompany activities. Your intercompany matching runs can be executed automatically either based on a fixed date/time or a specific status of predecessor tasks and, upon completion, your experts are notified that they can start their subsequent tasks.
A frequently asked question is how customers can most quickly get access to improved intercompany matching and reconciliation.
A European pharmaceutical company was facing the same challenge – the need to improve and automate the intercompany matching and reconciliation process in advance of a full-scale move to the latest release of SAP S/4HANA Cloud. The team evaluated options for intercompany subledgers and chose to implement an SAP S/4HANA Cloud, public edition system solely for the purpose of having the intercompany matching and reconciliation functionality.
Using the SAP Best Practices approach as a basis, the project was delivered in just 65 days with extraordinary time-to-value. The 60 users that are using the system of matching and reconciliation globally report improved collaboration with very little training required. And since this is a sidecar or “hub” approach, the team uses the secure and preconfigured data loading options, so that accountants can focus on exceptions management rather than pulling the data together.
This approach also gave the finance and IT teams a very successful introduction to SAP S/4HANA Cloud and the power of using best practices as an accelerator to achieving measurable business outcomes!
Stay tuned to this ongoing blog series for more information and use cases for Financial Management in SAP S/4HANA Cloud.