Go “Beyond Zero” with B2B Financial Management

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Managing business-to-business activities is often an uncomfortable barrier that falls to the finance and accounting (F&A) function. In a recent survey of M&A professionals involved in their companies’ B2B processes, 96% of respondents said they face ongoing challenges with B2B. Why should a seemingly simple accounting process cause distress?

This is because the sum of business-to-business activities should be zero, but it rarely, if ever is. Characterized by its manual, time-consuming and cumbersome nature, it can expose a business to unnecessary costs, delays and compliance risks.

While finance leaders are aware of B2B issues (costs appearing in the wrong place, overdue and unsettled balances, frequent charge disputes), most are unaware of their full impact that goes far beyond simple compliance. Reduced operational productivity, tax leakage, and shrinking statutory tax positions are just a few of the challenges resulting from poor business-to-business processes.

The big distraction

B2B transactions for multinationals can eclipse their external sales by a factor of 10 or more. Managing the immense volume and fragmented nature of cross-enterprise data is a huge challenge. Struggling with multiple, unintegrated financial systems, companies are forced to adopt “band-aid” tactics and, as Deloitte describes it, to sweep the “mess under the bed”. This is especially true when working with business partners and transactions that span multiple jurisdictions.

The M&A function spends far too much time being the consummate “balance police” digging up information and playing around in multi-column spreadsheets to reconcile counterparty data, track open items, and send emails. mails to dozens of parties. Many companies need to access more than one ERP system, which means data is not standardized – each usually has its own chart of accounts.

A growing problem

Intercompany differences are cumulative, which distorts the accuracy of the financial statements. Manual data marriage and dispute management can trigger financial write-offs and create reporting setbacks. The effort and time required to properly process B2B transactions lengthens the accounting close period.

As companies expand their reach and influence in the market, the B2B supply chain becomes longer and more complex, making it difficult to apply and monitor the correct margin on transactions and leading to days of longer settlements and currency exposure. The intercompany is a big issue, far beyond accounting, because it challenges the whole business.

Yet without action, the myriad of old, open, and unpaid B2B invoices will continue to be finance’s biggest distraction and lost opportunity, allowing you to focus on governance rather than advice and analysis.

Go “beyond zero”

Businesses are made up of many legal entities, making it difficult to quickly and accurately connect the different sides of business-to-business transactions to meet multiple requirements beyond statutory and group accounting.

Constant pressure from tax authorities on intercompany income and charges drives tax teams toward high volumes of frequent and granular intercompany charges.

The more accurate and granular B2B charges are, the greater the financial transparency into the underlying costs, resulting in defensible B2B prices. It turns out that this higher level of granularity helps demystify your true unit costs, helping business leaders pave the way for profitable growth.

Additionally, by minimizing Value Added Tax (VAT) leakage, businesses can benefit from

basic tax accounting and compliance capabilities and the use of analytics to better manage tax incidence across the organization.

By moving from traditional business-to-business processes to operational excellence, companies can overcome the accounting hurdle and focus on the most important value-added tasks. By using modern accounting software, companies can fully automate the entire lifecycle of B2B transactions, processing them across accounting, tax, and treasury departments, regardless of ERPs and systems. Ultimately, this can unify and streamline cross-company operations, ensuring more efficient and accurate reporting while reducing risk.

Through a combination of process reengineering and technology that streamlines and automates these new process flows, the intercompany can be managed holistically and comprehensively, essentially creating an intercompany subledger that captures all intercompany data inputs and accounting and management outputs.

Automating the accounting entries recorded on each ledger provides many additional benefits, including statutory, management and operational reporting, automated transfer pricing mark-up, tax-compliant invoicing (including electronic invoicing), integrated litigation, increased reconciliation rates, etc. We call this approach intercompany financial management and believe it represents the future of intercompany management.

Why now?

Optimizing business-to-business processes is critical in today’s business landscape. Globalization has assembled a network of highly complex supply chains that generate a blizzard of business-to-business transactions.

Increased M&A activity leads to even more fragmentation of ERPs and sub-ledgers. Rising interest rates and global economic instability complicate cash flow and capital allocation. Centralizing and automating intercompany activities can help optimize tax strategies, minimize liabilities, increase cash flow and reduce exposure.

With a unified business-to-business solution, businesses can reduce transactional work and business-to-business disputes, improving operational agility to respond to market dynamics and regulatory needs.

Intercompany offers an opportunity to unlock growth with better tax-efficient processes and optimized business operations that can impact bottom line, cash and talent. By relieving finance teams of challenges, they are free to refine operational efficiency, employ tax-efficient processes, and focus on new horizons for growth.

Start your business-to-business financial management journey

The modern enterprise is globally connected and the activities generated by this connectivity raise even more regulatory scrutiny. As Deloitte explainsregulators are increasingly focusing their attention on the cross-border transactions of multinationals.

M&A must become agile to respond to market dynamics and regulatory needs, which cannot happen if they are buried in tactical transactional work and inter-company disputes.

By eliminating cross-company distractions, companies will free up resources, increase efficiency, and incentivize M&A to shift from data stewardship and compliance to improving bottom line, supply chain dynamics, and cash flow. delivering significant value to the business.

By David Brightman, EMEA Solutions Marketing Manager, BlackLine

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