Coprocess has specialised in netting systems for over 25 years and has listened to the problems of many 00’s of companies over that time. In fact we have over 125 clients currently using our system.

For some corporates Intercompany can represent a large part of overall activity. However, time and again in these conversations we are told that their intercompany process is not smooth and is time consuming to reconcile. By which we mean bills have gone unpaid, they are missing important information or are just incorrect. Often invoices are blocked for payment and the dispute process is not rigorously followed. All these together make the reconciliation process, especially at month end, very time consuming and difficult. Mismatching of intercompany flows has a negative impact on the P&L and Balance Sheet of the consolidated accounts. In one case we know of, the auditors refused to sign off the accounts because the numbers in the Balance Sheet and P&L were unreliable.

It is not unusual for new clients to bring months, in some cases years, of unpaid open Accounts Receivable (AR) items into the Coprocess system in the first month.

What is worse is the effects are frustrating and very time consuming. Additionally, at month end closing the books correctly under time pressure is stressful.

What is the solution?

In a word: automated matching.

How important is matching to you?

When companies get to a certain size or complexity there needs to be a matching process put in place from the ground up. Matching ledgers at the detail level needs to be the starting point, not the rush at the end of the month when the consolidation has failed and everyone scrabbles around trying to find the information needed to resolve the problems. A clear process with discipline, clear contacts to resolve issues and a cost effective tool for getting the right information to the right people at the right time. Coprocess is focused on systems for netting and reconciliation of intercompany transactions. We provide a reconciliation system that can make all intercompany ledger items visible. We provide a common platform for reconciliation in a world with one or multiple ERP’s.

 

The Coprocess system

We are a specialist company offering an internet based netting system to corporates and banks for their corporate clients. The system has been designed based on over 25 years of experience in netting and the latest version is written using the industry standard .Net framework.

Access to the system is by a browser, there is no additional hardware or software for the client to buy. We can offer the system via Software as a Service (SaaS). Our hosting architecture and application is certified to SSAE18 Type 2, has back-up and recovery and redundancy built in. It offers secure hosting to many of our 125 clients.

The same system can be configured easily for new clients to avoid any coding changes and provides intercompany multilateral and multicurrency netting capability, with matching and invoice level negotiation, intercompany reconciliation and with a few changes to the configuration parameters, a 3rd party centralised vendor payment system.

In the past many netting systems were sold that simply did payment netting, there was no mention of matching, reconciliation or cleaning up Intercompany. Today a system that can solve intercompany matching issues is of interest to anyone from the AP & AR department, Shared Service Centre, Controller, Treasurer up to the CFO, also Finance, Audit, Tax etc. Anyone with a vested interest in intercompany from invoice processing to transfer pricing, audit to reporting, accounting to consolidation.

We have seen so many companies where HQ was not aware that their Intercompany was in disarray. Where consolidation systems are in place and only gross totals are used, no invoice details can be seen, that makes the reconciliation process very difficult. How do other companies avoid it? Some companies have the process under control by using their ERP system, yet many companies with an ERP system still run the month end reconciliation on a spreadsheet. Maybe the effort of fixing the problem in an ERP, even in a single instance of the ERP, is too big for the benefit derived. But it is difficult to use spreadsheets for matching, it is time consuming, error prone, involves much telephoning and emailing back and forth. Very often companies are fighting a losing battle.

Running a receivable driven netting at invoice level goes a long way to avoiding an intercompany mess. This is because one can upload all open AR and the counterparty can use this to book and reconcile. It also aids cash management by getting bills paid on time and bringing certainty to cash flows. However companies may be reticent about uploading AP that are not yet due for payment, so the matching opportunity is wasted and only those payments the payer wants to make appear in the system.

Receivable driven netting requires some degree of centralisation, the subsidiary companies may not be willing to agree to this, also due to country and currency restrictions, not all legal entities or currencies can be included in netting. It also needs specialist software to run a receivable driven netting which has, like the Coprocess system, to have all the features needed to negotiate invoices and communicate with the responsible person.

In any case, not all Balance Sheet items we want to match need to settle in the current month, some transactions we want to match in one currency will be settled in another, also many transactions are for reconciliation only, we just want to match what one party has against another’s.

The idea behind the Coprocess system with the intercompany reconciliation module or just recon on its own as a standalone system, is to enable automatic matching of the majority of transactions, freeing the subsidiary companies to work on the remaining unmatched items. As all items are uploaded for reconciliation only, subsidiaries do not have to be worried about uploading AP into a pure reconciliation system and them being paid before they are approved.

Over several months the number of auto-matched items grows. The sister companies agree static data (naming conventions, formats etc), invoice terms, billing currency etc and eliminate as many mismatches as possible in advance of the closing. Month by month the process and results improve until only the new transactions and exceptions remain each month.

What are the advantages of automated matching for reconciliation?

At the company or firm level:

  • Time and effort are cut from the month end close process
  • Reconciliation is finalised and agreed prior to the consolidation
  • Transaction types can be specified for example interest, royalties, trade etc
  • Transaction data can be augmented for example to help with transfer pricing and tax use amongst others

At the subsidiary level:

  • Communication is improved through system tools
  • Inconsistency of information is eliminated over time
  • Business decisions on invoicing are correctly placed with the business unit

And the advantages of using Coprocess:

  • There is a variety of matching criteria for different transaction types
  • Deployment is fast as there is no hardware or software to buy
  • Cost effective compared with alternatives, more powerful than manual methods
  • Pre-defined user roles based on industry practice
  • A common database containing all contact information, banking instructions, participant codes and settings and more, is available centrally
  • A calendar carefully designed to provide an efficient activity workflow is built in
  • Integration with other company wide and Treasury systems such as the ERP, TMS, FX dealing platform, banking platform, SWIFT interface and more
  • The process is real time and provides standard reporting for each functional area
  • A purpose designed system for reconciliation and agreement
  • Eliminate manual keying via file import/export
  • Local reconciliation data is provided back to subsidiaries in their matching data files

We have case studies which illustrate how some of our clients are using the reconciliation and netting modules.

by Keith Harris. Coprocess, Sales and Consulting

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