Clarifying The Financial Picture Of Multinational Corporations

Significant attention has been paid by the corporate FinTech arena to tackling frictions in B2B payments, including when those transactions occur across borders. But many of these solutions tend to focus on the movement of funds from one company to another — say, a supplier.

Less often recognized is the exceedingly high value and volume of intercompany payments, transactions that occur between subsidiaries or units of the same umbrella corporation. For a large firm, especially a multinational corporation (MNC), to manage those payments and obtain a clear picture of financials across the organization can be difficult. What’s more, as FourQ CEO and Co-Founder Varun Tejpal and Vice President of Transformation May Ma told PYMNTS, those B2B payments can also complicate the picture of financials from one operation to the next under the same MNC.

For Tejpal, this challenge was witnessed firsthand at General Electric, where he said FourQ was incubated.

“At one point, GE had over 600 ERPs,” he said. “Even now, it operates in 130-plus countries. For a company like GE, it is complex for them to operate, just to get business done.”

Lacking Visibility

For MNCs that operate with dozens of ERPs and other finance-related platforms, obtaining a consolidated picture of financials across various units and geographic operations can be immensely challenging when systems fail to interconnect with each other.

Ma explained that from a technology point of view, enabling organizations to integrate all of their financial systems across business units requires a collaborative approach, not only across finance leaders, but with the vendors that provide solutions to those organizations.

Under that understanding, she said, FourQ this week deployed its partner program to promote this collaboration. The initiative aims to tackle intercompany financial pain points in areas like tax compliance and supplier payments with solutions that offer eInvoicing, financial close and other tools, as well as other service providers. Enabling that collaboration between technology providers means facilitating the kind of data integration and consolidation that organizations need for a holistic view in real time.

“One of the biggest problems our clients face is really around visibility in real time,” Ma explained. “Real-time reporting or analytics to be able to provide performance metrics that really support the decision-making process.”

According to Tejpal, innovations that support the movement of data along with the movement of funds in cross-border payments infrastructures and solutions have also been important to advancing the ability for organizations to obtain key insights.

Intracompany Payments’ Intercompany Finance Impact

B2B payment workflows between organizations have a significant impact on the ability for large MNCs to manage finances within a firm. For example, explained Tejpal, understanding which business units account for the most spend at a particular vendor are valuable to finance leaders.

“Companies like GE or AIG have large vendor relationships with all kinds of suppliers — Dell, IBM, Accenture,” he said. “And they have centralized contracts.”

That is, they don’t have individual agreements with each business subsidiary or unit. Having the ability to audit vendor payments to validate work and understand cost allocation across operations can support broader sourcing and procurement initiatives and ensure firms maintain accountability for costs.

B2B payments are only one component of what makes intercompany financial management so challenging. Other key pain points include tax compliance or even invoice processing, largely due to the patchwork of individual regulatory requirements for each jurisdiction in which a company operates.

With mergers and acquisitions (M&A) activity expected to climb, the challenges of intercompany financials are anticipated to grow. Takeovers can mean inheriting a slew of new ERPs and other back-office systems that will need to be integrated across business units and across geographies.

“Traditionally, with M&A, you do a deal, and then you figure out how to integrate,” noted Tejpal. “But when you start getting into the details, you realize all the different challenges you have in getting different business units to merge and work together. That integration part is extremely critical to realize deal synergies.”

As organizations expand across borders and grow via M&A as well as organically, maintaining clear visibility across business units will be key to compliance and financial health.