Record to report / R2R – Reconciliations
Intercompany reconciliations were startup post and the reasons why reconciliations happened were shared in the following posts:
I had left you with a question, why will companies do inter-company business?
Based on the mode of structuring an organization, there can be different reasons of having multiple units:
- Geographical – this is usually the most probable reason, where a business wishes to be closer to its customer or client and will base its multiple units in different cities, states, countries and continents
- Functional – A warehouse may be separated from manufacturing, a retail outlet may be different from a wholesale, a back office unit may house a call center and transaction processing, the sales team may be working out of a different unit.
- Raw material availability – units may need separate locations, especially where procurement of raw materials id done from some specialized areas, like in the case of an iron ore industry, or any mining source. Based on this, the initial processing unit may be in a different location
- Sales outlets – the sales outlets may need to be multiple and in different locations
Now each of these could be required by the organization to be a separate cost or profit center. Coming back to today’s question, why will companies do inter-company business. Seeing the above it becomes quite evident, why this happens:
- The output of one unit may be the input for the other
- One unit has some specialized produce, which is in demand at different locations
- Stock / service availability at one location
- Administrative cost distributions
- Corporate cost distributions
- Feed to various sales outlets
- Export / Import material / produce movements
You can check and make a list for your client…
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