Companies with multiple subsidiaries often need to handle transactions between these entities. For instance, a subsidiary in Canada may need to supply inventory to its U.S. counterpart.

These intercompany transactions can become complex and expensive, particularly for companies experiencing growth through acquisitions. Newly acquired subsidiaries may have different invoicing systems, payment methods, and accounting processes.

Failing to maintain accurate records of intercompany transactions can increase the risk of regulatory fines and penalties.

Let’s explore how to leverage NetSuite’s native Automated Intercompany Management feature to streamline this process.

Solution

NetSuite simplifies intercompany transactions through a specific field on the Customer and Vendor records called Represents Subsidiary. When this field is populated, the entity (Customer or Vendor) is linked to the specified subsidiary.

Using the example of the Canadian and U.S. subsidiaries, we would create a Vendor record for the Canadian Subsidiary. Although this Vendor record is associated with the U.S. Subsidiary, its Represents Subsidiary field would be set to Canada, indicating that the Vendor represents the Canadian Subsidiary.

Similarly, we would create a Customer record for the U.S. Subsidiary. This Customer record would be associated with the Canadian Subsidiary but have its Represents Subsidiary field set to the U.S., representing the U.S. Subsidiary.

By setting up these entity records with the Represents Subsidiary field, we enable intercompany transactions between the Canadian and U.S. subsidiaries.

To activate the Automated Intercompany Management feature, navigate to Setup > Company > Enable Features. This feature adds an Eliminate Intercompany Transactions line item to the Close Accounting Period checklist, ensuring all intercompany transactions are balanced.

For example, if Canada sold $100 worth of inventory to the U.S., and the U.S. sold $100 worth of inventory to Canada, these transactions would cancel out when the period is closed. NetSuite handles this cancellation automatically with the Automated Intercompany Management feature enabled.

Note that an Elimination Subsidiary must be created for each subsidiary within OneWorld before enabling this feature.

Business Process

The NetSuite intercompany transaction process includes the following steps:

1. Create a Purchase Order indicating Subsidiary A needs to purchase from Subsidiary B.
2. Create a Sales Order to match the Purchase Order using the Manage Intercompany Sales Orders interface.
3. Create the Item Fulfillment to indicate that Subsidiary B has shipped the inventory.
4. Create the Item Receipt to confirm that Subsidiary A has received the inventory.
5. Generate the Invoice to show that Subsidiary B is billing Subsidiary A.
6. Create the Vendor Bill to confirm that Subsidiary A has been billed by Subsidiary B for the inventory.

This native NetSuite process facilitates the creation and management of intercompany transactions and automates month-end subsidiary reconciliation.

Further customizations through scripting can optimize this workflow, ensuring balanced transactions between subsidiaries.

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