Intercompany Settlement

Intercompany transactions create receivable and payable balances between subsidiaries. Settlement is the process of clearing these balances through cash transfers, netting, or journal entries.

Settlement Overview

Intercompany Settlement Concept
═══════════════════════════════════════════════════════════════════════════════

BEFORE SETTLEMENT:
────────────────────────────────────────────────────────────────────────────────

  USA Subsidiary              UK Subsidiary              Germany Subsidiary
  ────────────────            ────────────────           ────────────────────
  IC Recv from UK: $10,000    IC Pay to USA: £8,000      IC Pay to USA: €5,000
  IC Recv from DE: $5,000     IC Recv from DE: £2,000    IC Pay to UK: €2,000
  IC Pay to UK: $3,000        IC Pay to DE: £1,000

  Complex web of receivables and payables across all subsidiaries

AFTER SETTLEMENT:
────────────────────────────────────────────────────────────────────────────────

  USA Subsidiary              UK Subsidiary              Germany Subsidiary
  ────────────────            ────────────────           ────────────────────
  IC Recv: $0                 IC Pay: $0                 IC Pay: $0
  IC Pay: $0                  IC Recv: $0                IC Recv: $0

  OR Net Position Only:
  Net Recv: $12,000           Net Pay: £6,000            Net Pay: €5,000

═══════════════════════════════════════════════════════════════════════════════

Settlement Methods

Method 1: Cash Settlement

Cash Settlement Process
═══════════════════════════════════════════════════════════════════════════════

SCENARIO: UK owes USA $10,000

Step 1: UK Subsidiary makes payment
────────────────────────────────────────────────────────────────────────────────

  Transaction: Vendor Payment
  Vendor: USA Subsidiary (IC Vendor)
  Amount: $10,000 (or £8,000 in GBP)
  Bank Account: UK Operating Bank

  UK GL:
  ┌─────────────────────────────────┬────────────┬────────────┐
  │ Account                         │   Debit    │   Credit   │
  ├─────────────────────────────────┼────────────┼────────────┤
  │ 2150 IC Payable - USA           │   £8,000   │            │
  │ 1000 Bank - UK                  │            │   £8,000   │
  └─────────────────────────────────┴────────────┴────────────┘

Step 2: USA Subsidiary receives payment
────────────────────────────────────────────────────────────────────────────────

  Transaction: Customer Payment
  Customer: UK Subsidiary (IC Customer)
  Amount: $10,000
  Bank Account: USA Operating Bank

  USA GL:
  ┌─────────────────────────────────┬────────────┬────────────┐
  │ Account                         │   Debit    │   Credit   │
  ├─────────────────────────────────┼────────────┼────────────┤
  │ 1000 Bank - USA                 │  $10,000   │            │
  │ 1150 IC Receivable - UK         │            │  $10,000   │
  └─────────────────────────────────┴────────────┴────────────┘

RESULT:
  • Actual cash moved between bank accounts
  • IC Receivable and IC Payable cleared
  • Bank balances reflect transfer

Method 2: Netting Settlement

Netting Settlement Process
═══════════════════════════════════════════════════════════════════════════════

SCENARIO: Multiple IC balances to net

BEFORE NETTING:
────────────────────────────────────────────────────────────────────────────────
  USA owes UK:    $3,000
  UK owes USA:    $10,000
  ────────────────────────
  Net: UK owes USA $7,000

NETTING JOURNAL ENTRY:
────────────────────────────────────────────────────────────────────────────────

USA Subsidiary Entry:
  ┌─────────────────────────────────┬────────────┬────────────┐
  │ Account                         │   Debit    │   Credit   │
  ├─────────────────────────────────┼────────────┼────────────┤
  │ 2150 IC Payable - UK            │   $3,000   │            │
  │ 1150 IC Receivable - UK         │            │   $3,000   │
  └─────────────────────────────────┴────────────┴────────────┘

UK Subsidiary Entry:
  ┌─────────────────────────────────┬────────────┬────────────┐
  │ Account                         │   Debit    │   Credit   │
  ├─────────────────────────────────┼────────────┼────────────┤
  │ 2150 IC Payable - USA           │   £2,400   │            │
  │ 1150 IC Receivable - USA        │            │   £2,400   │
  └─────────────────────────────────┴────────────┴────────────┘

AFTER NETTING:
────────────────────────────────────────────────────────────────────────────────
  USA IC Receivable from UK: $7,000 (net)
  UK IC Payable to USA: £5,600 (net)

  Only net amount requires cash settlement

Method 3: Journal Entry Settlement

Journal Entry Settlement
═══════════════════════════════════════════════════════════════════════════════

SCENARIO: Write off IC balance or allocate to equity

USE CASES:
  • Capital contribution from parent
  • Dividend distribution
  • Permanent balance write-off
  • Year-end equity adjustment

EXAMPLE: Parent capitalizes subsidiary loan
────────────────────────────────────────────────────────────────────────────────

Parent Subsidiary:
  Transaction: Intercompany Journal Entry

  ┌─────────────────────────────────┬────────────┬────────────┐
  │ Account                         │   Debit    │   Credit   │
  ├─────────────────────────────────┼────────────┼────────────┤
  │ 3100 Investment in Subsidiary   │  $500,000  │            │
  │ 1150 IC Receivable - Child      │            │  $500,000  │
  └─────────────────────────────────┴────────────┴────────────┘

Child Subsidiary (Auto-created):
  ┌─────────────────────────────────┬────────────┬────────────┐
  │ Account                         │   Debit    │   Credit   │
  ├─────────────────────────────────┼────────────┼────────────┤
  │ 2150 IC Payable - Parent        │  $500,000  │            │
  │ 3200 Additional Paid-in Capital │            │  $500,000  │
  └─────────────────────────────────┴────────────┴────────────┘

RESULT:
  • IC balance converted to equity
  • No cash movement required
  • Parent's investment increases
  • Child's equity increases

Settlement Workflows

Monthly Settlement Process

Monthly IC Settlement Workflow
═══════════════════════════════════════════════════════════════════════════════

WEEK 1: RECONCILIATION
────────────────────────────────────────────────────────────────────────────────
  □ Run IC Balance Report for all subsidiary pairs
  □ Identify discrepancies between receivable/payable
  □ Investigate and resolve timing differences
  □ Confirm balances match across subsidiaries

WEEK 2: NETTING ANALYSIS
────────────────────────────────────────────────────────────────────────────────
  □ Calculate net positions for each subsidiary pair
  □ Determine optimal netting strategy
  □ Prepare netting journal entries
  □ Get approval for netting amounts

WEEK 3: CASH SETTLEMENT
────────────────────────────────────────────────────────────────────────────────
  □ Initiate wire transfers for net amounts
  □ Process customer/vendor payments in NetSuite
  □ Match payments to invoices/bills
  □ Verify bank reconciliation

WEEK 4: VERIFICATION
────────────────────────────────────────────────────────────────────────────────
  □ Confirm all IC balances at expected levels
  □ Document any remaining open items
  □ Report settlement status to management
  □ Archive settlement documentation

Automated Settlement

Auto-Settlement Configuration
═══════════════════════════════════════════════════════════════════════════════

Navigation: Setup > Accounting > Intercompany Framework

┌─ Intercompany Auto-Settlement ───────────────────────────────────────────────┐
│                                                                              │
│  ☑ Enable Automatic Settlement                                              │
│                                                                              │
│  Settlement Frequency:   [▼ Monthly                    ]                     │
│                                                                              │
│  Settlement Method:                                                          │
│    ○ Cash Payment                                                            │
│    ● Journal Entry Netting         ← Recommended for simplicity             │
│    ○ Mixed (Cash above threshold)                                            │
│                                                                              │
│  Settlement Threshold:   $10,000                                             │
│    (Amounts below threshold net via JE, above via cash)                      │
│                                                                              │
│  Settlement Account:     [▼ 1155 - IC Clearing        ]                      │
│                                                                              │
│  Approval Required:      ☑ Yes                                               │
│  Approver:               [▼ IC Controller Role        ]                      │
│                                                                              │
└──────────────────────────────────────────────────────────────────────────────┘

IC Clearing Account

Using a Clearing Account

IC Clearing Account Flow
═══════════════════════════════════════════════════════════════════════════════

The IC Clearing Account acts as a temporary holding account during settlement:

SETUP:
────────────────────────────────────────────────────────────────────────────────
  Account: 1155 - Intercompany Clearing
  Type: Other Current Asset
  Subsidiary: All (shared)
  Normal Balance: Zero (temporary)

SETTLEMENT FLOW:
────────────────────────────────────────────────────────────────────────────────

Step 1: USA clears receivable through clearing
  Dr. IC Clearing              $10,000
      Cr. IC Receivable - UK           $10,000

Step 2: UK clears payable through clearing
  Dr. IC Payable - USA         £8,000
      Cr. IC Clearing                  £8,000

Step 3: Clearing account nets to zero (after FX adjustment if any)
  Clearing balance: $0 (with minor FX variance)

BENEFIT:
────────────────────────────────────────────────────────────────────────────────
  • Simplifies multi-subsidiary netting
  • Easy to identify unsettled items (non-zero clearing balance)
  • Provides audit trail
  • Handles timing differences

FX Considerations in Settlement

Exchange Rate Impact

FX Impact on IC Settlement
═══════════════════════════════════════════════════════════════════════════════

SCENARIO: IC balance in different currencies

Original Transaction (Jan 1):
────────────────────────────────────────────────────────────────────────────────
  USA records: IC Receivable $10,000
  UK records: IC Payable £8,000 (rate: 1.25)

Settlement (Jan 31):
────────────────────────────────────────────────────────────────────────────────
  Current rate: 1.30 (GBP strengthened)
  UK pays £8,000 = $10,400 at new rate

USA Settlement Entry:
  ┌─────────────────────────────────┬────────────┬────────────┐
  │ Account                         │   Debit    │   Credit   │
  ├─────────────────────────────────┼────────────┼────────────┤
  │ 1000 Bank                       │  $10,400   │            │
  │ 1150 IC Receivable - UK         │            │  $10,000   │
  │ 7100 FX Gain                    │            │     $400   │
  └─────────────────────────────────┴────────────┴────────────┘

UK Settlement Entry:
  ┌─────────────────────────────────┬────────────┬────────────┐
  │ Account                         │   Debit    │   Credit   │
  ├─────────────────────────────────┼────────────┼────────────┤
  │ 2150 IC Payable - USA           │   £8,000   │            │
  │ 1000 Bank                       │            │   £8,000   │
  └─────────────────────────────────┴────────────┴────────────┘
  (No FX impact in UK - paid in home currency)

════════════════════════════════════════════════════════════════════════════════

KEY POINT: FX gains/losses realized at settlement
           Unrealized FX handled through revaluation before settlement

Revaluation Before Settlement

IC Balance Revaluation
═══════════════════════════════════════════════════════════════════════════════

MONTH-END PROCESS (Before Settlement):
────────────────────────────────────────────────────────────────────────────────

1. Run Currency Revaluation for IC accounts
   Setup > Accounting > Revalue Open Currency Balances

2. System revalues IC Receivable/Payable to current rates

3. Unrealized FX Gain/Loss recorded

USA Month-End Revaluation Entry:
  ┌─────────────────────────────────┬────────────┬────────────┐
  │ Account                         │   Debit    │   Credit   │
  ├─────────────────────────────────┼────────────┼────────────┤
  │ 1150 IC Receivable - UK         │     $400   │            │
  │ 7200 Unrealized FX Gain         │            │     $400   │
  └─────────────────────────────────┴────────────┴────────────┘

4. At settlement, unrealized becomes realized

Reconciliation

IC Balance Reconciliation

Intercompany Reconciliation Process
═══════════════════════════════════════════════════════════════════════════════

STEP 1: EXTRACT IC BALANCES FROM BOTH SUBSIDIARIES
────────────────────────────────────────────────────────────────────────────────

  USA View:                          UK View:
  IC Receivable from UK: $10,250     IC Payable to USA: £8,000

  Convert UK to USD: £8,000 × 1.28 = $10,240

  Difference: $10 (timing or rounding)

STEP 2: IDENTIFY DIFFERENCES
────────────────────────────────────────────────────────────────────────────────

  Common Causes:
  ┌─────────────────────────────────────────────────────────────────────────┐
  │ • Transactions entered in one sub but not yet auto-created in other    │
  │ • Different exchange rates used                                         │
  │ • Rounding differences in currency conversion                           │
  │ • Timing - transaction date spans period close                          │
  │ • Manual adjustments in one sub only                                    │
  │ • Voided transactions not properly reversed                             │
  └─────────────────────────────────────────────────────────────────────────┘

STEP 3: RECONCILIATION ADJUSTMENTS
────────────────────────────────────────────────────────────────────────────────

  If difference is:
  • FX Rounding: Accept if immaterial, or adjust via JE
  • Timing: Will clear when paired transaction posts
  • Error: Correct the source transaction
  • Unexplained: Investigate before settlement

Reconciliation Report

-- IC Reconciliation Query
SELECT
    recv_sub.name AS receivable_subsidiary,
    pay_sub.name AS payable_subsidiary,
    SUM(recv_bal.amount) AS receivable_balance_usd,
    SUM(pay_bal.amount * -1) AS payable_balance_usd,
    SUM(recv_bal.amount) - SUM(pay_bal.amount * -1) AS difference
FROM
    -- Receivable side
    (SELECT
        t.subsidiary,
        t.custbody_ic_subsidiary AS ic_subsidiary,
        SUM(tal.amount) AS amount
    FROM
        transaction t
        JOIN transactionaccountingline tal ON t.id = tal.transaction
        JOIN account a ON tal.account = a.id
    WHERE
        a.acctnumber LIKE '115%'  -- IC Receivable
    GROUP BY
        t.subsidiary, t.custbody_ic_subsidiary
    ) recv_bal
    JOIN subsidiary recv_sub ON recv_bal.subsidiary = recv_sub.id
    -- Payable side
    JOIN (SELECT
        t.subsidiary,
        t.custbody_ic_subsidiary AS ic_subsidiary,
        SUM(tal.amount) AS amount
    FROM
        transaction t
        JOIN transactionaccountingline tal ON t.id = tal.transaction
        JOIN account a ON tal.account = a.id
    WHERE
        a.acctnumber LIKE '215%'  -- IC Payable
    GROUP BY
        t.subsidiary, t.custbody_ic_subsidiary
    ) pay_bal ON recv_bal.ic_subsidiary = pay_bal.subsidiary
                AND recv_bal.subsidiary = pay_bal.ic_subsidiary
    JOIN subsidiary pay_sub ON pay_bal.subsidiary = pay_sub.id
GROUP BY
    recv_sub.name, pay_sub.name
HAVING
    ABS(SUM(recv_bal.amount) - SUM(pay_bal.amount * -1)) > 0.01
ORDER BY
    ABS(difference) DESC

Settlement Documentation

Settlement Schedule

IC Settlement Schedule Example
═══════════════════════════════════════════════════════════════════════════════

MONTHLY SETTLEMENT CALENDAR:
────────────────────────────────────────────────────────────────────────────────

  Day 1-3:    Period close activities complete
  Day 4-5:    IC balance reconciliation
  Day 6:      Netting calculations finalized
  Day 7:      Netting journal entries posted
  Day 8-10:   Cash settlements initiated
  Day 11-12:  Payments received/applied
  Day 13:     Final reconciliation
  Day 14:     Settlement report to management

SETTLEMENT DOCUMENTATION:
────────────────────────────────────────────────────────────────────────────────

  Required for each settlement:
  □ IC Balance Report (before settlement)
  □ Netting Calculation Worksheet
  □ Approval emails/signatures
  □ Wire transfer confirmations
  □ Payment application screenshots
  □ IC Balance Report (after settlement)
  □ FX variance reconciliation
  □ Final sign-off

Audit Trail

Document	Purpose	Retention
IC Balance Report	Pre-settlement balances	7 years
Netting Worksheet	Calculation documentation	7 years
Approval Records	Authorization evidence	7 years
Wire Confirmations	Payment proof	7 years
Reconciliation	Variance explanation	7 years
FX Rate Documentation	Rate source evidence	7 years

Best Practices

Settlement Efficiency

Practice	Benefit
Regular Schedule	Monthly settlement reduces balance complexity
Netting First	Minimize cash movement through netting
Single Settlement Currency	Reduce FX complexity
Clearing Account	Simplifies multi-party netting
Automated Recon	Catch discrepancies early

Common Pitfalls

Pitfall	Solution
Large unsettled balances	Implement regular settlement schedule
FX surprises	Revalue before settlement
Reconciliation breaks	Investigate before settling
Missing paired transactions	Check auto-creation settings
Period mismatch	Align settlement with period close

Cross-Subsidiary Transactions - How IC transactions are created
Consolidation & Elimination - Period-end elimination process
Multi-Currency Operations - Currency and FX management
Intercompany Flow - Complete IC transaction guide

Settlement Overview​

Settlement Methods​

Method 1: Cash Settlement​

Method 2: Netting Settlement​

Method 3: Journal Entry Settlement​

Settlement Workflows​

Monthly Settlement Process​

Automated Settlement​

IC Clearing Account​

Using a Clearing Account​

FX Considerations in Settlement​

Exchange Rate Impact​

Revaluation Before Settlement​

Reconciliation​

IC Balance Reconciliation​

Reconciliation Report​

Settlement Documentation​

Settlement Schedule​

Audit Trail​

Best Practices​

Settlement Efficiency​

Common Pitfalls​

Related Documentation​

Settlement Overview

Settlement Methods

Method 1: Cash Settlement

Method 2: Netting Settlement

Method 3: Journal Entry Settlement

Settlement Workflows

Monthly Settlement Process

Automated Settlement

IC Clearing Account

Using a Clearing Account

FX Considerations in Settlement

Exchange Rate Impact

Revaluation Before Settlement

Reconciliation

IC Balance Reconciliation

Reconciliation Report

Settlement Documentation

Settlement Schedule

Audit Trail

Best Practices

Settlement Efficiency

Common Pitfalls

Related Documentation