Intercompany trade

When a project or an order, such as a sales order, is created, various entities within an organization perform activities to execute this order. For example, the sales office invoices the customer and the warehouse delivers the goods.

If the entities of an organization have their own profit and loss registration process, for each activity, internal cost and revenue transactions must be registered to balance the accounts. You can set up intercompany trade to allow the application to create internal cost and revenue transactions, and internal invoices.

Example

Sales office S1 and warehouse W1 are part of organization A, but are located in different countries. To fulfill a sales order to an external customer, S1 instructs W1 to deliver the goods to the customer. W1 sends an internal invoice to S1 to cover the costs for the goods and the delivery.

  • Intercompany trade orders

    If you set up an intercompany trade relation, the application creates intercompany trade orders for the entities involved to support their own profit and loss registration process. Intercompany trade orders trigger the creation of the internal cost and revenue transactions, and, if specified, the internal invoices.

    On an intercompany trade order you can view the details of the intercompany trade activities, such as dates and times, the entities involved, amounts, and the transfer pricing rules on which the amounts are based. Depending on the transfer pricing rules, some pricing details are maintainable.

  • Approval

    Intercompany trade orders can include an approval step. If approval is specified, deliveries are not allowed until the intercompany trade order is approved.

    The approval process can be supported by a workflow application.

    Both the buying and the selling organization must approve the intercompany trade orders. The selling organization is the delivering entity of the intercompany trade process, and the buying organization is the buying entity. Approval can be done automatically or manually. For example, you can specify that the selling organization must approve manually and the buying part must approve automatically.

  • Intercompany trade for backorders and return orders

    When an intercompany trade order is created for a backorder or a return order, the data and settings of the intercompany trade order can be retrieved from either of these sources:

    1. The intercompany trade agreement
    2. The original ITR order

    Source 2 reduces manual data entry if the original ITR order is changed before the backorder or return order is created. The preferred source is defined in the intercompany trade agreement.

  • Intercompany trade setup - overview

    The application distinguishes various types of internal trade processes and trade details, which are specified in intercompany trade scenarios and intercompany trade agreements. These scenarios and agreements are linked to intercompany trade relationships.

    An intercompany trade order is created if:

    • An intercompany trade relationship is present for the entities involved in the fulfillment of an order.
    • The intercompany trade relationship includes an intercompany trade scenario that corresponds with the business process involving the order.

    The intercompany trade order is composed of the information of:

    • The originating object lines, such as delivery dates and item quantities
    • The settings of the applicable trade agreement and trade scenario
    • Other master data, such as business partner information and tax data

    These settings determine the amounts of the cost and revenue transactions and, if specified, the internal invoice lines. Depending on the settings, you can adjust the transfer pricing rules or the amounts on the intercompany trade order.

  • Intercompany trade cost by item

    The standard costs of an item can be based on the intercompany trade price applicable to an intercompany trade relationship between two enterprise units.

  • Profit split

    Profit split is a method to divide the profit of an external sales transaction between the entities involved in the transaction. In LN, this applies to sales transactions in which two entities are involved. For example, the profit gained from a sales order is divided between the sales office and the warehouse.

  • Adopt selling cost structure

    In large enterprises, various organizational entities can be involved in fulfilling an order or project for an external customer. For example, location A delivers subassemblies to location B, who use the subassemblies to produce an end item that is sold to the external customer. Internally, location A is the selling entity and location B is the buying entity.

    For more insight into the costs of the item, the buying entity can adopt the cost component structure of the item or project of the selling entity. In the previous example, location B can adopt the cost structure of the subassemblies that location B buys from location A. Also, a specific cost component can be defined on which to book the intercompany trade profit margin of the selling entity.