Four companies, one owner, and balances that never agree
A client runs a trading company, a property company that owns the unit, a holding company and a small side venture. Rent goes from trading to property. Management charges go from holding to the others. The owner pays things from whichever account has money in it. Each company has its own Xero file.
Every month the bookkeeper posts recharges on both sides by hand. By year end, the amount the trading company says it owes property does not match what property says it is owed, and someone spends a day working out why.
Why intercompany goes out of step
Each ledger only knows its own side. A payment from one company for another's cost needs a matching entry in the other company, and if it is missed, nothing tells you. Recharges agreed with the client, such as a monthly management charge, are posted from memory. When different bookkeepers look after different companies in the same group, the two halves can be done in different months or not at all.
Owners also blur the lines. A director pays a supplier for company B from company A's card and forgets to mention it, which is one of the most common sources of a difference.
What mismatched intercompany costs
Unreconciled intercompany balances are a classic year-end problem, and a slow one to unpick months later. Management figures for each company are misstated in the meantime, which undermines the reporting you provide. The group client's accountant raises queries. And the owner loses confidence when balances that should obviously agree do not.
| Cause of the difference | How the check spots it |
|---|---|
| Recharge posted on one side only | Movement in one ledger with no partner entry |
| Posted in different months | Timing difference that clears next month |
| Different amounts posted | Both sides present but unequal |
| Company paid another's cost | Supplier coded in the wrong entity |
| VAT treated differently on each side | Net and gross amounts differ |
How we build intercompany support for group clients
- We map the group: each company's ledger, the intercompany accounts in each, and the recurring recharges you have agreed with the client, such as rent or management charges.
- Each month, the recurring recharges are drafted in both companies through the Xero or QuickBooks API, as matching entries, ready for the bookkeeper to approve and post.
- A check reads every intercompany account in every company in the group and pairs them up, showing the balance on each side and the difference.
- Differences are broken down by transaction so the bookkeeper can see which entry has no partner, rather than starting from a single total.
- Payments that look like one company paying for another, such as a supplier normally used by a sister company, are flagged for a question to the client.
- The group view is included in the month-end status for the client, so a group is not closed until its intercompany agrees or the difference is explained.
What recharges should exist and how they are treated for VAT and tax is decided by you and the client's advisers. The system posts and checks what you agree.
Groups that close cleanly each month
Recharges are posted on both sides at once, in the same month, every month. Differences show up while they are small and recent. Different bookkeepers on different companies can see the whole group. And year end stops including a day of hunting for why two numbers do not match.
Do your group clients look like this?
- Intercompany balances rarely agree without investigation.
- Recharges are posted by hand in each company.
- Different staff look after companies in the same group.
- Owners pay costs from whichever company has money.
- Year end for groups always takes longer than planned.