If you manage multiple companies and need to record intercompany transactions like sales, purchases, and journals, you may be posting each transaction twice. Intercompany transactions in Business Central allow you to transact sales and purchasing documents and general journal entries to your satellite offices or subsidiary companies.
Whether your organisation operates with multiple branches in different regions and currencies or multiple branches in the same country, Business Central Intercompany Transactions allows you to exchange services and goods between companies while eliminating the need to duplicate transactions. In this post, I will guide you through all you need to set up, configure and transact Intercompany Transactions in Business Central.
How to set up Intercompany Transactions
Let's start from the basics. Intercompany transactions require a dedicated setup in all companies that trade with each other. The first step is to create the intercompany partners.
Intercompany Partners
A partner represents a trading entity, an office or a company in Business Central. An intercompany partner can also be assigned to a customer or vendor if you intend to purchase and sell products or services between companies using orders or invoices, which I will cover later in this post.
Intercompany partners are set in the Intercompany Setup page. I recommend working on multiple browser tabs when configuring intercompany partners because it makes it easier to match the IC codes of the different companies.
The first step is to create the Intercompany Code for the company that trades with the others. This also allows you to use this company as a synchronisation partner for the Intercompany Chart of Accounts and Dimensions.
The two main fields to populate in the Intercompany Setup page are the Default Intercompany General Journal Template and Batch. In this example, I set up those fields with a default batch, as shown in the picture below.
The process described so far must be completed for the other companies. This step requires logging in to the other companies, repeating the steps above, and defining Intercompany Codes for all the companies you want to set up.
I recommend using codes that help you identify the company and the IC partner. For example, I have companies in my sandbox in different regions like the UK and Italy. Therefore, I used code C-UK for my UK company and will use code C-IT for my Italian company.
Use the action Add IC Partner on the page menu to create an intercompany partner and fill in the relevant fields. Use the Company Name field on the IC partner page to link an IC partner to a company in Business Central.
Business Central will validate the IC code in the company linked to this code, which is Cronus IT in my example. You will get a warning if the value of the Intercompany Code chosen on this page does not match the IC code in the other company. The error below is an example of an incorrect configuration.
I recommend working on multiple browser tabs to ensure the configuration is correct across all companies.
Additional setup is required on the intercompany partner page for sales and purchase transactions. This part is only needed if the companies trade using orders and invoices, but not if the intercompany transactions are posted via journals.
The Sales and the Purchase Transaction tabs of the intercompany partner page allow setting up a customer and a vendor and linking those to the IC partner. Later in this post, I will explain how to exchange orders and invoices using different transfer types.
The Receivables Account on this page allows setting up a dedicated balance sheet account for intercompany sales. The Outbound Sales Item No. Type specifies the item reference used when the intercompany partner receives the order; here, we have three choices:
Order: The item number on the sales document line of the sending company is the same as the item number on the purchase document of the receiving company.
Common Item No. The reference will be the value of the Common Item No. field on the item card.
Item Reference: The item reference code set up for the intercompany customer matches the item reference of the intercompany vendor item reference.
The same logic applies to the purchase transaction tab.
Cross-Environment Intercompany Partners
Starting from Business Central version 23, users can set up intercompany partners and transfer transactions across environments. At the time of writing this article, this feature is still in preview mode. Business Central allows connecting multiple environments through the Environments page. Each environment comes as an environment link designed to store additional information for system admins. For example, I have created groups to separate my production from my sandbox environments.
I can add an intercompany partner for a company in the linked environment using a process similar to what I described before. I used the Connect Externally Setup action this time to link the company hosted in the external environment.
The setup also involves a step where you create and enable a registration application in Azure Portal in the company that you need to give access to from other companies. The picture below shows my Cross Environment IC Setup application with permission to read and write data to Business Central.
Transfer types
Users can send intercompany transactions using different methods. Which method to use depends on whether you have Business Central on-premises or SaaS.
File Location: Available only for Business Central on-premises. This option allows retrieving Intercompany Transactions as .xml files. In Business Central online, you can't use file locations to transfer transactions to IC partners because the application can't access your local network. However, you can still use files to send and receive IC transactions. In this case, the file will be downloaded to the user's computer, from where it can be sent to someone in the partner company, for example, by email.
Database: This option allows sending transactions within the Business Central database. With the database transfer type, users can exchange intercompany purchases and sales in the sending company and get the corresponding transaction in the receiving company's inbox.
Email: With email the .xml files are exchanged via email. Users must download the attachment and import it into the IC Inbox.
No Transfer: With this option, there is no transfer of data.
Intercompany Chart of Accounts
Companies set up to exchange sales and purchases require the same intercompany chart of accounts. The IC chart of accounts is used to map the accounts of the trading partners so that transactions sent by one company are received to the correct account by the other partner.
Typically, the IC chart of accounts is copied from one of the companies, but you can set up a new intercompany chart of accounts. To create an IC chart of accounts, use the action IC Chart of Accounts on the Intercompany Setup page.
On the next page, use the action Copy from Chart of Accounts, and you will get all the general ledger codes copied into this page. The next step is to map the codes of the two charts of accounts.
Mapping using the same codes of the main company's COA works if the subsidiaries have a different chart of accounts. For example, you map an expense account of a subsidiary company to a revenue IC general ledger code that is the same revenue account of the parent company. However, you must use a different mapping if the subsidiaries have the same chart of accounts of the main company. In that case, a revenue account of the COA must be mapped against an expense account of the IC COA and vice versa.
For this example, I mapped a Management Fees expense account to a Management Fee Revenue account and did the same the other way around.
The last step is to repeat the process in the other companies. You can also enable Intercompany synchronisation if the companies use the same chart of accounts. In my case, one entity operates in a different region; therefore, I must use different codes.
Intercompany Dimensions
Intercompany Dimensions follows a similar logic to the Intercompany Chart of Accounts and consists of codes and values you can use to map dimensions when sending and receiving transactions between two companies in Business Central.
The option to copy and map dimensions is also available, like with the IC chart of accounts.
Intercompany Item Reference
You can exchange sales and purchases between companies in Business Central using items in the document lines. When doing so, you must ensure that the item number on the document sent is linked to the item number of the receiving company. For this purpose, you can choose three different methods to reference items:
Order: Choose this method if the trading companies use the same item numbers
Common Item Number: This is a field in the item card used to reference items in intercompany transactions
Item Reference: This method uses the value in the item reference table assigned to the Customer or Vendor linked to the IC partner.
Intercompany Bank Accounts
The next step to configure IC transactions in Business Central is to create the IC Bank Accounts. Like the chart of accounts and dimensions, intercompany bank accounts allow the mapping of bank accounts of the trading entities when posting intercompany payments. The IC bank accounts can be copied from the IC partner if the exchange type is Database.
Intercompany Transactions Sales and Purchases
Now that the setup is complete, we can see how to create, send and post IC transactions. First, we will look at invoices and orders, and then journals.
Invoices
Business Central sends the intercompany transaction automatically when you post an invoice for an intercompany partner. The example below shows the confirmation message I received after posting a sales invoice for customer C-IT.
The corresponding transaction in the receiving company will appear in the IC inbox. Alternatively, you can set up to auto-accept inbound transactions. In my example, auto-accept is off. Therefore, I must open the Intercompany Inbox to find the purchase document.
You can open the document and see all the details in the IC inbox before accepting, including the document lines and the dimensions. You can also cancel or return the transaction to the sender.
After accepting the IC transaction, Business Central created the purchase invoice. The picture below shows the document created.
The vendor on the invoice header comes from the vendor set up on the IC partner, the Vendor Invoice Number is copied from the posted sales invoice number and the G/L number on the invoice line results from the IC chart of accounts mapping.
You can also use the IC inbox to upload files when the transfer type is not Database. As I explained before, Business Central allows the exchange of Intercompany Transactions as files via email or a shared folder.
Orders
You can send orders as IC transactions in Business Central; this process requires the additional step of sending the transaction using the dedicated action on the document menu.
In my example, I have a purchase order with an item on the document line, and the Auto-Send transactions is turned off on the IC setup page. Consequently, Business Central creates the transaction in the IC outbox after I click on Send.
Like the IC Inbox, the outbox allows you to check the document before sending it. You can also cancel the transaction or download the .xml file and upload it to the other company if the transfer type database is not enabled.
NOTE: You must disable auto-send IC transactions when working with intercompany orders because Business Central will always create a new IC transaction when you post an invoice from the order. Consequently, you will end up with an order and an invoice for the same document.
Intercompany General Journals
You can use journals to post intercompany transactions in Business Central by using Intercompany General Journal. This journal type is an extended general journal that includes additional fields. Below is an example
The account type of the journal above is an IC partner so I could select partner C-IT in the next field. I chose the Management Fees Revenue as the Balancing Account No. and the IC Account No was added automatically because it's linked to account 10320 via the Intercompany Chart of Accounts.
Posting the journal credited Management Fees and debited Intercompany Receivables.
By posting this journal, Business Central created an IC transaction.
In summary
Intercompany transactions allow posting documents and journals between companies in Business Central, eliminating the need to duplicate the transaction twice. This powerful functionality requires setting up multiple pages with data that allows cross-referencing general ledger codes, dimensions and items.
Transactions can be sent and received using different methods, such as a file location on your servers, Business Central database, or email. Intercompany transactions can be created from sales and purchase documents or general journals, and the transactions can be sent automatically when posting an invoice or a journal for an intercompany partner.
Do you have a question or a comment? Write to me or leave a comment below.
Regards
Alfredo
Do you want to train with us?
Click below to check our training programs.
