Large businesses have frequent administrative and financial transactions with the outside world, but also internally. Often, an organization is many different companies and entities, with numerous transactions, exchanging goods and services. When they do business with each other, we call these intercompany transactions. One of these companies is the buyer, the other is the seller. As they both belong to the same organization, sales and purchases between them need to balance in their financial systems. There should be no difference between, for example, the involved amounts or the taxes. Also, the bookings in the account (sales and purchasing) must match. Otherwise, manual intervention is necessary for the financial figures of the group as a whole. This is called reconciliation.
The best way to accomplish reconciliation is to agree orders upfront. Even specifying the exact bookings that will be recorded in the general ledger and accounts, after the actual delivery has taken place. This will be in the finance systems of both the buyer and seller. The same situation can arise within just one company, when different business units deal with each other. Costs incurred by one business unit may have to be partly or fully transferred to another business unit. This is known as reallocation.
So, to cater for these challenges, what does the ideal order to cash (O2C) support system look like? Firstly, buyer and seller need to be able to agree and register orders in the system. Followed by the O2C system sending this agreement from seller to buyer. The buyer then approves the document, which also includes booking information that will be used later. Both parties can negotiate the settlement before it gets final.
Now the actual delivery takes place, or the service is rendered. The transactional data enters the O2C system, an invoice is sent and received by the buyer. As everything has already been agreed upfront, there’s no discussion about correctness. Posting of financial transactions is now efficient, taking place at the moment the invoice is issued, in both administrations. The reconciliation is complete.
ICORP creates intercompany invoicing and reconciliation systems for large organizations. One of our customers is a global retail concern: we help their companies do business with each other, all over the world. Our system handles everything, including agreement to order, correspondence, confirmation, invoicing, payment, booking and reconciliation. Optimising their speed and efficiency, as well as increasing the ROI.