Intercompany Reconciliation & Finance Consolidation


Michel Morel

Head of Applications

Today, let’s talk about intercompany reconciliation. Intercompany reconciliation balances transactions between different entities within a company. This is a big burden in the financial consolidation process, as it usually takes an extraordinary amount of time to understand the root causes of account differences and to balance transactions.

Intercompany reconciliation has a significant impact on closing time, and most “fast close” initiatives focus on this step of the process to achieve significant gains. The best practices in this area are well known:

  • Decentralize: push the reconciliation process down to each subsidiary or reporting unit.
  • Anticipate: because every day – even every hour – counts in the closing period, start the matching process at the beginning of the reporting period to make it almost continuous.

The challenge of intercompany reconciliation has led many vendors to create and promote ad-hoc solutions, disconnected from the consolidation tool (think SAP Intercompany). Why is that? There are two main reasons to separate these solutions:

  1. Most legacy consolidation systems implement a very rigid bottom-up process: reporting units submit their numbers and then the central group validates and processes these numbers. This doesn’t work when it comes to peer-to-peer intercompany reconciliation, where collaboration is the norm and transparency has to be enabled between subsidiaries. To make it worse, there is often an inflexible workflow process that forces a waterfall approach, even though a more agile, iterative way of proceeding is necessary.
  2. The second reason is that peer-to-peer matching requires real-time calculations because each party must be immediately notified of a change from the other party. This is to avoid losing time on unnecessary research in the case that the difference has already been explained or fixed. As I mentioned in my previous post, this doesn’t work well with an architecture based on batch calculations.

Actually, there may be a third reason for having two solutions, which may be to sell more software…

Whatever the reason is, you end up with two applications to manage, maintain, and integrate. This is not efficient from a time and effort perspective.

So how is Anaplan different… and why does it matter?

Simply put, it’s because of the technology. Anaplan is in-memory, so all calculations are real-time (I tend to repeat myself, but this is truly a huge advantage that brings a number of benefits to many areas of the applications). So this means that whenever Company A declares an intercompany transaction with Company B, it is immediately visible to Company B. If there is a difference, it is flagged immediately and reported to both companies immediately. And when the difference is explained, both are notified in real-time.

The second advantage is that Anaplan is a single, completely integrated solution. There is no need to manage two solutions, no data transfer, and no batch. To continue on the previous example, consolidation statements are updated immediately whenever Company A or Company B makes an adjustment.

This leads me to the third benefit of Anaplan’s Financial Consolidation application. It has been designed around a truly collaborative process. I’ll dig more into this in a subsequent post, but it’s a great advantage in the case of intercompany matching. As I said in my last post, this is all about iterations in a peer-to-peer model, where the traditional workflow doesn’t work.

To sum up:

In-memory, integration, and agility are the fundamental benefits of Anaplan’s technology that transform the consolidation process.

Anaplan is the only in-memory consolidation solution, which means everything is real-time. And it’s a single solution, so it’s simpler, less expensive, and there is less to manage. You end up with an agile consolidation process – moving from a batch, waterfall approach to a real-time, peer-to-peer approach.

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