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.
- 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.
- 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.