A Guide to NetSuite’s Intercompany Automation Across Different Base Currencies

Businesses face challenges when managing intercompany transactions across their subsidiaries, becoming increasingly difficult when multiple currencies are involved. Different base currencies create complexity, including bottlenecks when reconciling accounts, ensuring accurate allocations, and handling currency fluctuations—all of which create inefficiencies and potentially risky financial discrepancies. 

Here’s how NetSuite’s intercompany automation can help businesses streamline their global financial operations. 

Seamless Integration with NetSuite Financial Management 

NetSuite’s Intercompany Automation integrates with its financial management features, enabling businesses to: 

• Automate the creation of journal entries for intercompany transactions. 
• Streamline month-end close by auto-eliminating intercompany balances. 
• Maintain real-time financial visibility across subsidiaries. 

Automating these tasks offers businesses big benefits in reduced errors and time saved. Global businesses can feel more confident in the accuracy of their numbers—no matter how complex the business. 

Automating Currency Conversions for Intercompany Transactions 

One of the biggest pain points in intercompany financial management is dealing with foreign exchange fluctuations. NetSuite addresses this challenge by integrating with HSBC and Xignite for daily exchange rate updates, ensuring that intercompany transactions reflect the most accurate currency conversions. 

How NetSuite Handles Currency Fluctuations   

Managing currency fluctuations is a big part of intercompany transactions, especially for businesses operating across multiple subsidiaries with different base currencies. Without automation, exchange rate differences create discrepancies in financial reporting, making reconciliation a complex and time-consuming nightmare. NetSuite automates the management of foreign exchange gains and losses, ensuring accurate, close to real-time financial statements across all your subsidiaries.   

Realized Gains and Losses   

When a business makes a payment on an invoice denominated in a foreign currency, the value of that payment may differ from the originally recorded amount due to exchange rate fluctuations. NetSuite automatically calculates and books a realized gain or loss at the time of payment to account for this difference. For example, if a company records an invoice at an exchange rate of 1 USD = 0.90 EUR but pays it later when the rate shifts to 1 USD = 0.85 EUR, NetSuite will record the loss variance, ensuring the financials reflect the actual impact of the currency fluctuations.   

Unrealized Gains and Losses  

At the end of each financial period, businesses account for outstanding foreign currency transactions that remain unpaid. Because exchange rates fluctuate daily, the value of these unpaid invoices can change over time. NetSuite addresses this by automatically booking an unrealized gain or loss during the month-end closing process. The unrealized gain or loss is automatically set to reverse the first day of the following month. 

Cumulative Translation Adjustment (CTA)   

For multinational businesses consolidating financial results across subsidiaries with different base currencies, exchange rate discrepancies can lead to translation differences in financial reporting. NetSuite manages these variations through the Cumulative Translation Adjustment (CTA) account, which captures any differences arising from currency conversion during financial consolidation.  

Best Practices for Managing Intercompany Transactions Across Base Currencies 

To ensure smooth intercompany operations across different base currencies, businesses should apply a few best practices, including: 

• Use a single intercompany payable and receivable account to prevent unnecessary complexity. Do not create separate accounts for each type of currency. 
• Automate the revaluation of open foreign currency balances to prevent lingering discrepancies in the CTA account. 
• Leverage NetSuite’s automated intercompany journal entries by setting default intercompany accounts in the system. 
• Establish a clearing bank account for foreign currency transactions to streamline payments between subsidiaries operating in different currencies. 

Revalue Intercompany Transactions to Avoid CTA Imbalances  

Intercompany transactions directly impact intercompany accounts payable (AP) and receivable (AR). If these transactions are not properly revalued, discrepancies will be recorded in the CTA elimination account, which can distort your financial statements. To prevent this, businesses must book their unrealized gains or losses to correct differences caused by fluctuating exchange rates. Regularly revaluing intercompany balances helps maintain accurate financial records and ensures that any exchange rate discrepancies are properly accounted for.   

Use the Right Consolidated Exchange Rates for Accurate Reporting   

NetSuite automatically calculates and applies three types of consolidated exchange rates to ensure consistency in financial reporting across different base currencies: 

• Average exchange rates apply to income statement accounts, so that revenues and expenses translate based on an average rate over the reporting period. 
• Historical exchange rates are for income statement accounts that require consistency in long-term financial tracking.  
• Current exchange rates apply to equity accounts, reflecting the most up-to-date valuation of financial holdings. NetSuite automatically calculates and assigns these exchange rates based on account type, helping businesses maintain accurate consolidated financial statements.   

Ensure Proper Bank Account Currency Matching  

When making payments in foreign currencies, businesses must ensure that their bank accounts match the base currency of the subsidiary to avoid payment processing issues. For example, a German subsidiary with a EUR base currency cannot directly pay FX denominated transactions from a USD bank account. Businesses should review their subsidiary structures and banking arrangements to ensure they align with operational needs.   

Use Clearing Bank Accounts to Facilitate Foreign Currency Payments   

A common workaround for handling foreign currency payments in a non-base currency bank account is to set up a clearing bank account in the same currency as the subsidiary’s base currency. When making a payment, the business first processes it through the clearing account, then performs a bank transfer to move funds from the actual bank account into the clearing account. This process ensures that payments are correctly processed while maintaining proper financial tracking. To avoid reconciliation issues, the clearing account should always have a zero balance after transactions are completed.   

By implementing these best practices, businesses can streamline intercompany financial management, improve accuracy in reporting, and reduce the administrative burden associated with multi-currency transactions. NetSuite’s automation tools further enhance these processes, helping companies maintain compliance and operational efficiency across their global financial operations. 

Why This Matters for Your Business 

If your business operates across multiple subsidiaries and currencies, adopting NetSuite’s intercompany automation can be an important step toward achieving financial clarity and operational efficiency. Talk to Sikich today about how we can help you apply and optimize the latest features in NetSuite.