6. How to manage invoicing between different entities of the same company (inter-company flows)
In this article, we explore how to present taxes on invoices: VAT or other types of tax. Discover the links to all the articles in the dossier below:
1. How to estimate costs, prices and billing type for a billable project?
2. How to manage the risk of project overruns?
3. How can I get paid faster by my customers?
4. How to manage complex billing arrangements
5. How to handle tax billing and multi-currency invoicing?
6. How to manage invoicing between different entities within the same company (inter-company flows)?
7. How to simplify communication with customers?
8. How can I modify certain parameters during the course of a project that will have an impact on invoicing?
9. How can I set up a project quotation and invoicing tool?
a. What is interco billing?
When two companies belonging to the same group lend each other resources to carry out a project, the loan is generally billed through inter-company invoicing.
Within the same company, this type of loan can also take place between different teams. In this case, invoicing is not necessary, as the resources belong to the same company. On the other hand, you do need to set up a tracking system to enable you to allocate sales to the various teams or business units.
b. How do you manage intercostal billing?
i. Defining a transfer price
The first step is to define the transfer price between the two companies. Note that this transfer price cannot be defined freely. It must comply with the accounting regulations of each country.
Indeed, there is a risk for tax authorities that transfer pricing will be used to allocate sales to less-taxed entities. It is therefore a highly scrutinized system that should not be taken lightly. It's best to rely on the company's auditors or chartered accountants to calculate the right transfer prices.
Generally speaking, the transfer price is based on a resource cost to which a mark-up is applied, the percentage of which varies according to a number of criteria. It can be a daily or monthly price, to facilitate follow-up.
ii. Track time spent to calculate amounts to be re-invoiced
To establish inter-company invoicing, the transfer price must then be applied to the volume of work carried out. This means that employees working for other companies in the same group need to keep track of the time spent on these projects.
Tracking time spent at interco enables finance teams to calculate precisely the amount to be invoiced, and to justify these amounts in the event of a tax audit.
iii. Inter-company eliminations
Intercost billing therefore enables the company that has lent its resource to generate sales in exchange for this loan. It can then recognize this in its income statement. For the company benefiting from the loan, intercos billing represents an expense recognized in its income statement.
When the accounts are consolidated, i.e. at the level of the group that owns the two companies, inter-company transactions must be eliminated. This is because the sales generated by the lending entity cannot be added to the sales of the entity carrying out the project and invoicing the final customer. This sales figure must therefore be deducted, along with the margin achieved by the lending entity (which is neutral at group level) to obtain the correct data.
Stafiz simplifies the management of intercostal invoices and automatically handles consolidation and intercostal elimination.
When the intercostals option is activated, intercostals are automatically calculated in Stafiz according to an employee's entity and the entity to which the projects they are working on belong.
If an employee of entity A works on a project for entity B, he or she is automatically added as an internal subcontractor. Based on these parameters, Stafiz calculates the amounts to be invoiced by entity A to entity B as production progresses. B.
Intercost invoices can be generated at the click of a button.
Finally, the calculations in Stafiz enable the income statements of each entity to be drawn up, and then the consolidated amounts to be calculated at group level by making all the intercompany eliminations.
The result: reliable income statements and reporting for each business unit, so you can really see the contribution of each team and activity.
The 9 problems of project invoicing and how Stafiz can help you solve them?
1. How do you estimate costs, prices and billing type for a billable project?
2. How to manage the risk of project overruns?
3. How can I get paid faster by my customers?
4. How to manage complex billing arrangements
5. How do you handle tax billing and multi-currency billing?
6. How to manage invoicing between different entities within the same company (inter-company flows)
7. How can we simplify communication with our customers?
9. How do I set up a project quotation and invoicing tool?
