Manage transactions: how international transactions run, step by step

International transactions start in the local entity, where they are captured and approved. Treasury then handles currency conversion and settlement. Group finance closes the loop by matching intercompany balances, posting eliminations and signing off the figures that feed consolidation. Each handoff is a point where errors either get caught or travel onward.

The steps in order

1. Capture the transaction at source. A clerk in the local entity's payables or receivables team records the invoice or billing document. The essentials are the counterparty, the transaction currency, the entity code and, for intercompany items, the partner entity code. A missing partner code here causes most of the pain later.

1. Match the document to its evidence. The same payables team checks the invoice against the purchase order and the receiving report where one exists. Anything that fails validation goes on hold with a reason code. It is not pushed through with a note promising a later fix.

1. Route for approval. The budget holder in the entity approves routine items. Cross-border charges, management fees and anything outside the normal pattern usually need a second approver at group level, often the entity controller.

1. Convert foreign currency amounts. Treasury publishes the rate table and the system applies it. The local accountant confirms the right rate type was used. Spot rates apply to individual transactions. Average or closing rates apply to the reporting steps further down. Mixing them up is a quiet, persistent source of differences.

1. Net intercompany balances before settlement. Where a netting arrangement or in-house bank exists, treasury offsets what entities owe each other. Only the net amount moves. Each participating entity confirms its position before the netting run is finalised.

1. Schedule and release payments. Payments not yet due sit in a holding queue until their date arrives. The payments team builds the run and performs quality checks on bank details, currency and amounts. Authorised signatories, who must be separate from the people who built the file, then release it to the bank.

1. Post to the general ledger. Most entries arrive as feeds from the payables, receivables and fixed asset subledgers. Anything that cannot come through a feed, such as accruals or reclassifications, is prepared as a manual journal by the entity accountant and approved by the controller before posting.

1. Reconcile subledgers to the ledger. The entity accountant ties each control account back to its subledger detail. Every balance should trace to individual transactions, and every transaction should trace to its source document. Breaks are corrected with a recorded entry, never by overriding a balance.

1. Agree intercompany positions with counterparties. Both sides of each intercompany relationship confirm their balances, usually through a shared matching tool or a confirmation exchange. Unexplained differences go to a suspense account owned by the group intercompany team, which chases them to resolution.

1. Record eliminations and translation adjustments. The group consolidation team removes intercompany balances and profits from the combined figures. It also books the translation differences arising when entity results are restated into the group currency.

1. Review and certify. The entity controller signs off the local submission. The group financial controller then reviews the consolidated position and releases it for reporting.

Where practice usually departs from the document

The written process tends to assume that steps happen in sequence. In reality, intercompany agreement often starts before local posting is finished, because teams know the deadline is fixed and the counterparty is slow.

Manual workarounds collect around the exchange rate step. Spreadsheets with locally maintained rates survive long after the system rate table was meant to replace them.

Suspense accounts are another tell. If balances sit there across several closes, the matching rules or the partner coding at capture need attention. The intercompany team cannot fix that alone.

Questions to ask the people who run it

• Which rate gets applied when a transaction is entered late, and who decides?
• What happens to an invoice that fails matching? Who clears the hold, and how is that recorded?
• Are there intercompany charges that bypass the normal approval route, such as recurring management fees?
• When the counterparty disagrees with a balance, which side adjusts, and who arbitrates?
• Which journals are posted manually every close that could come through a feed instead?
• Does anyone keep a private spreadsheet to track open differences, and what does it contain that the system does not?
• Who can change payee bank details, and is that person ever also the one releasing payments?
• What gets checked before certification, and what gets skipped when the close runs late?
• Which entities consistently cause reconciliation breaks, and why do the people closest to the work think that is?

APQC's Process Classification Framework® (PCF) is an open standard developed by APQC, a nonprofit that promotes benchmarking and best practices worldwide. To download the full PCF or to view definitions and measures, please visit www.apqc.org/pcf.