Overview of Intercompany Invoicing

An Oracle White Paper July 2005

Overview of Intercompany Invoicing

EXECUTIVE SUMMARY...................................................................................................................................................... 1 INTRODUCTION ................................................................................................................................................................... 1 MAJOR CONCEPTS AND TERMINOLOGY................................................................................................................. 2 The Organization Model........................................................................................................................................................... 2 Intercompany Invoicing............................................................................................................................................................ 4 Customer and Supplier relationship........................................................................................................................................ 6 Intercompany Transaction Flow ............................................................................................................................................. 7 Transfer Price.............................................................................................................................................................................. 9 Freight ........................................................................................................................................................................................ 10 Tax .............................................................................................................................................................................................. 11 Currency..................................................................................................................................................................................... 11 BUSINESS FLOWS................................................................................................................................................................ 14 External Drop Shipment......................................................................................................................................................... 14 Global Procurement (Central Procurement) ....................................................................................................................... 19 Internal Drop shipment (Central Distribution) .................................................................................................................. 23 Internal Fulfillment .................................................................................................................................................................. 27 SCENARIOS NOT SUPPORTED IN INTERCOMPANY TRANSACTIONS...................................................... 28 Scenario 1 – Internal drop shipment from an internal organization to another internal organization ..................... 29 Scenario 2 – Drop Shipment and intercompany transactions for Non-Shippable, Non-Stockable and NonTransactable items.................................................................................................................................................................... 29 Scenario 3 – Drop Shipment and Intercompany transactions for Non-invoiced items .............................................. 29 Scenario 4 – Global Procurement for projects with expense destination and transfer pricing .................................. 30 Scenario 5 – Global Procurement with shop floor destinations and transfer pricing .................................................. 30 Scenario 6 – Consigned inventory for Global Procurement flows.................................................................................. 30 Scenario 7 – Handling encumbrances in Drop Ship and Global Procurement flows.................................................. 30 Scenario 8 – Retroactive pricing in Global Procurement.................................................................................................. 30 Scenario 9 – P-Cards in Global Procurement ..................................................................................................................... 30 Scenario 10 – Advanced Sales functionality between operating units............................................................................. 30 Scenario 11 – Advanced cross border trade management ................................................................................................ 31 Scenario 12 – Inter Org Transfers......................................................................................................................................... 31 Scenario 13 – Internal Orders with expense destination................................................................................................... 31 CONCLUSION ....................................................................................................................................................................... 31 ADDITIONAL RESOURCES............................................................................................................................................. 31

Figure 1 - Organization Hierarchy Model.............................................................................................................................. 2 Figure 2 - The organizational model mapped in Oracle Applications .............................................................................. 3 Figure 3 - Intercompany Transaction Flow ........................................................................................................................... 4

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Figure 4 - Advanced Accounting enabled.............................................................................................................................. 5 Figure 5 - Intercompany Transaction Flow ........................................................................................................................... 5 Figure 6 - Logical Material Flow.............................................................................................................................................. 5 Figure 7 - Customer - Supplier relationship........................................................................................................................... 6 Figure 8 - Possible intercompany transaction flow options................................................................................................ 8 Figure 9 - Logic for Transfer Price.......................................................................................................................................... 9 Figure 11 - External Drop shipment..................................................................................................................................... 15 Figure 14 - Central Procurement ........................................................................................................................................... 19 Figure 15 - Central Distribution ............................................................................................................................................ 23 Figure 16 - Internal Orders..................................................................................................................................................... 27 Figure 17 - Internal Sales Orders Flow Not Supported .................................................................................................... 29

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Individual plants procure components from their own suppliers. Though the financial transactions between V1 and VC are routed through VJ. Oracle Applications support three main logistics needs of global organizations – Central Distribution. Due to tax advantages. These companies have multiple operating units and organizations around the world.) procurement needs of Vision Operations across Overview of Intercompany Invoicing 1 . most of the countries stipulate mandatory domestic company partnership. VS centralizes all the commodity (like steel.5.10. Automobile industries are increasingly centralizing their sourcing activities globally to leverage their combined volumes for a better price from their suppliers. Aluminum etc. logistic movement of goods takes place directly between V1 and VC. VJ has manufacturing facilities in Osaka (O1) and distribution center at Tokyo (T1). VA in turn has two subsidiaries – Vision Japan (VJ) and Vision China (VC). Example 2 Continuing the above example. V1 sources all the goods from china through VJ. and taking advantage of the operations and tax benefits that can be achieved by running operations throughout the world. Most of the steel and aluminum companies in Asia sell their entire output to another marketing company. This whitepaper details the modeling of the global logistics in Oracle Applications as in 11. Central Procurement and Drop Ship. 100 % that it owns. licensees and several associated label franchisee. It has a 100 % owned subsidiary company called Vision Asia (VA). the financial ownership through these organizations does not necessarily follow the physical movement of goods. Trading companies are setup in tax haven nations to take advantage of bilateral and multi-lateral trade agreements to minimize the tax. separate legal entities. Following are few examples: • • • In tele-communications industry.Intercompany Invoicing EXECUTIVE SUMMARY More and more companies are doing business globally.. INTRODUCTION A corporation manages its global operations in various countries through a network of subsidiaries. Vision Operations (V1) has another subsidiary company called Vision Singapore (VS). This complex network of operations is necessitated to take care of local legal and fiscal environment. which prevail in each of those countries. • Consider the following two examples: Example 1 Vision Operations (V1) is based in USA. When goods are shipped or received.

.the financial reporting entity for which there is a chart of accounts. AR. salary transfers.Organization Hierarchy Model A key requirement for the global implementation of Oracle applications in such a complex business environment is the ability to process "intercompany transactions. asset transfers. with key information being shared across the entire corporation (such as on hand inventory balances. MAJOR CONCEPTS AND TERMINOLOGY The Organization Model When implementing business applications worldwide. customer master. AP. and parts of PO are "partitioned" at this level. which supports the independent operation of your business units (such as sales order bookings and invoices).the organization which is considered a major "division" or "business unit". which become involved with intercompany invoicing. implementation tips." where one business unit invoices another for transfer of goods and services. Figure 1 . While the organization model continues to evolve with advanced releases of the applications. Often these intercompany transactions involve transactions related to general expenses. invoices. currency. and guidance for coordinating the many departments. at whose level business transactions are segregated – sales orders. cash applications. We would be discussing implementation of intercompany invoicing for the fictitious organization as depicted in Figure 1. payables. Within Oracle applications. core structures involved with intercompany invoicing remain as follows: Set of Books . and vendor master). item master. However. funds transfer. This paper provides setup steps. material is directly shipped from the suppliers to all the manufacturing plants. Certain Oracle applications such as OE. companies need to address the issue of how to separate certain information that is specific to each operating unit while at the same time making other types of information globally accessible. Overview of Intercompany Invoicing 2 . Legal Entity Operating Unit . for example. royalty payments and product transfers. meaning that operating units have visibility only to their own transactions. and purchasing documents.the organization at whose level fiscal and tax reporting is prepared. and financial calendar for securing ledger transactions. This paper discusses only those intercompany transactions that are related to product transfers such as sales of goods and internal procurement.world and procures the material on behalf of all VJ and its subsidiary plants and places purchase orders on its suppliers. this is handled through the "multi-organization" configuration: a single installation of software.

Identify sellingshipping relationships and procuring-receiving relationships. manufacturing. the organization structure depicted in figure 1 can be modeled in Oracle applications as depicted in Figure 2.Inventory Organization . in particular. Understand Oracle multi org structure and the building blocks in data structure. Consider how your designs will stand up to changes over time. For example. Figure 2 .the organization at which warehousing. You need to clearly understand the corporation’s organizational setup and map it to Oracle’s Multi-Org’s model. Integration testing. • • • Overview of Intercompany Invoicing 3 . and/or planning functions are performed. The implementation should be top to bottom approach.The organizational model mapped in Oracle Applications Following are the key implementation points you need to look into: • Understand the corporation business entities and the relationship between them. is a great opportunity for validating how well your business processes and system transactions will flow throughout your applications worldwide. Breakup the business relationships into manageable process flow and map it to various entities in Oracle applications. Challenge them with extensive unit and integrated test plans which simulate (1) the current environment and (2) scenarios going forward at least 5 years.

you can model Oracle to generate intercompany invoices between two or more operating units. Overview of Intercompany Invoicing 4 . it also establishes the invoicing relationship between Start Operating Unit and End Operating Unit. when a customer order is processed through the order cycle and then invoiced. The shipping warehouse records journal entries to its inventory asset and cost of goods sold accounts. You cannot invoice between two inventory orgs if they belong to the same operating unit.Intercompany Transaction Flow The intercompany transaction flow establishes the physical flow of goods and financial flow relationship between two operating units. Figure 3 . The intercompany AR invoice is the transaction used by Oracle to record intercompany receivable accounting for the shipping organization: debiting intercompany AR (at transfer price). these transactions should happen automatically and as soon as possible after the shipment takes place. The intercompany transaction flow establishes the relationship between one operating unit (known as Start Operating Unit) and another operating unit (known as End Operating Unit) about the actual movement of goods. and the selling organization needs to make the corresponding payment. Oracle supports intercompany invoicing when: • • Shipping operating unit is different from selling operating unit and Receiving operating unit is different from procuring operating unit. The shipping organization needs to bill the selling organization at transfer price. For example. Similarly. You need to setup intercompany transaction flow of type procuring when buying operating unit is different from receiving operating unit. This can be done using the intercompany invoicing process within Oracle applications.Intercompany Invoicing Intercompany invoicing is done when one organization offers products / services to another operating unit. and as applicable tax and freight. When this scenario involves a selling organization in one business unit but a shipping warehouse in a different business unit. and freight and crediting intercompany revenue. revenue. The intercompany AP invoice is the transaction used by Oracle to record the payable accounting for the selling organization: debiting intercompany COGS (at transfer price) and freight and crediting the intercompany payable account. Intercompany transaction flow is of two types – shipping flow and procuring flow. Note that intercompany invoicing is possible only between two operating units. The building block of intercompany invoicing is the setup of intercompany transaction flow. For a single process flow (one procure-to-pay cycle or order-to-cash cycle). Ideally. tax. additional accounting must take place. the selling organization records journal entries to accounts receivable. You need to setup intercompany transaction flow of type shipping when selling operating unit is different from shipping operating unit.

you need to use the ‘Advanced Accounting’ option for enabling intercompany invoicing for procuring flow even if it involves only two operating units. You need to define intercompany relations between each pair of operating units in the intercompany transaction flow. However.Advanced Accounting enabled Oracle supports intercompany invoicing for both shipping and procuring flows. Figure 5 .Intercompany Transaction Flow At each pair of intercompany relationship. No logical transactions will be created when you do not choose ‘Advanced Accounting’. in Figure 6 . If advanced accounting is set to No. logical intercompany Overview of Intercompany Invoicing 5 . then an intercompany transaction flow can have only one intercompany relation (it is between start operating unit and end operating unit). based on which intercompany invoices between multiple operating units are raised. If you do not enable ‘Advanced Accounting’ option at the intercompany transaction header. To facilitate accounting in the intermediate OUs. However. which is involved in intercompany invoice flow.By enabling advanced accounting for an intercompany transaction flow.Logical Material Flow Logical transactions are useful to record financial transactions between two operating units without physical movement of goods. For example. and currency code to be used on AR and AP invoices. then no logical transactions will be generated and no intermediate nodes can be defined. For example. Figure 6 . you would be able to generate multiple intercompany invoices between different operating units for the same physical movement of goods.Logical Material Flow. When advanced accounting is enabled for an intercompany transaction flow. Note that in Figure 5 . it is a financial intermediate node. Figure 4 . the transactions in Figure 4 can be broken down as depicted in Figure 6.Intercompany Transaction Flow. you will define the intercompany accounts. Oracle creates ‘Logical Material Transactions’ between the operating units. Vision Japan is an intermediate operating unit through which no physical goods flow. physical goods never flow through intermediate operating unit. you will be able to define multiple intercompany relationships between different operating units.

you need to define Vision Japan as a customer in Vision China operating unit. actually you are establishing an internal customer and supplier relationship. at present intercompany invoicing does not support any sales credit check. Overview of Intercompany Invoicing 6 . Also note that intercompany invoice cannot be raised for inter-org transfers of type ‘Direct Transfer’ through Internal sales Orders. system ignores the flag and does not generate any logical transactions. Though you can set the ‘Advanced Accounting’ flag at Intercompany Transaction Flow header to ‘Yes’. When you define an intercompany relationship between Vision Japan and Vision China. Similar is the case for every intercompany relationship in an intercompany transaction flow. logical receipt and logical sales order issue transactions are created for those receipts and issues that are not accompanied with physical receipt and issue of goods.receipt and issue transactions are created. Also. Sometimes you will find that these companies engage in a customer – supplier relationship.Supplier relationship For example.Customer . However. ‘Advanced Accounting’ option is not available for internal requisitions – internal sales order business flow. Vision China should be defined as a supplier in Vision Japan. Similarly. Intercompany invoicing is possible for inter-org transfers of type ‘In-transit’ only through ‘Internal sales Orders’. you cannot have intercompany invoicing for internal sales order with direct transfer (in shipping network between the inventory organizations) as an option. Figure 7 . Similarly. This means you cannot have an intermediate financial node in the intercompany transaction flow. Customer and Supplier relationship Intercompany invoicing is widely used in multinational organizations. No intercompany invoicing is possible if you perform org transfers between two inventory orgs belonging two different operating units without ‘internal sales Orders’. You have an flexibility to switch off intercompany invoicing for internal sales orders by setting the profile ‘INV: Intercompany Invoice for Internal Orders’ to No. in Figure 7.

However. Customer (Bill – To customer) b. Inventory Org of To Operating unit. Start date and End Date for the Transaction flow 9.Intercompany Transaction Flow Intercompany transaction flow with advanced accounting describes the financial accounting flow between start operating unit and end operating unit through a series of intermediate operating units. then you can define only one pair of From Operating unit and To operating unit. you can create intercompany transaction flows for specific item categories. Inventory Organization in intermediate and end operating unit are used for logging logical transactions based on which costing will be done. Item Pricing Options for Asset Items (PO/Transfer price available for procuring flows only) 7. you have to create inventory organizations though no physical entities exist. For AR invoicing: a. you have to run your intercompany AR and AP programs in those operating units. If advanced accounting flow is set to ‘No’ at Intercompany Transaction Flow header. all the costing transactions are carried out at inventory organization. Flow Type – Shipping / Procuring 4. 2. Category (Purchasing category for purchasing flows and Inventory category for shipping flows) 6. Ship From (for Shipping flows) and Ship To (Procuring Flows) 5. All logical transactions in intermediate operating units and start / end operating unit will be logged in the inventory organization specified in each intercompany relationship. Advanced Accounting flag (Set to Yes for creating logical transactions and defining intermediate nodes). Start Operating Unit 2. End Operating Unit 3. (Not mandatory if the ‘Advanced Accounting is set to No). Intercompany transaction flow is created between two operating units (called as start Operating unit and End Operating Unit). Following are the attributes of the header: 1. This flag should be set to Yes for all Procuring Flows. Customer Location Overview of Intercompany Invoicing 7 . From Operating unit b. For Relationship between nodes: a. Intercompany Transaction Flow as a header and the intercompany relationship between each pair of nodes is modeled as intercompany relationship lines. you can create as many number of transaction flows as there are inventory organizations in end operating unit (receiving operating unit). However. This section describes the role of inventory organizations in inventory transaction flow with advanced accounting. To Operating Unit d. Customer Number c. Similarly. For each transaction relationship between two nodes. For shipping flow. Inventory Org of From operating unit c. for recording logical transactions and for running your intercompany AR and AP programs. you can create as many number of transaction flows as there are inventory organizations in start operating unit (shipping operating unit) and for procuring flow. In Oracle. Similarly. Item Pricing Options for Expense Items (PO/Transfer price available for procuring flows only) 8. More often you will find that intermediate operating units do not have any physical warehouses. you can define the following: 1.

AR Transaction Type e. Intercompany COGS Account f. Supplier site c. Supplier b.3.Possible intercompany transaction flow options You can create additional transactional flows between operating units by defining item category for each intercompany transaction flow. d. Overview of Intercompany Invoicing 8 . Inventory Accrual Account e. Freight Account d. Expense Accrual Account Figure 8 . For AP Invoicing: a. Currency Code (Currency code of the order/ Currency Code of the From Operating unit / Currency Code of the End Operating Unit).

However. If you specify that the transfer price is not same as the PO price in the intercompany transaction flow. then system uses the same logic as depicted in . you can specify whether the transfer price is same as the PO price in intercompany transaction flow. This means that an operating unit sells at the same price at which it procured the item to another operating unit. Transfer price is also usually called as “Arm’s length Price” and is generally guided by the originating country’s accounting standards. Figure 9 . for procuring flow.Transfer Price Transfer Price is the price at which an item is transferred from one operating unit to another operating unit. you specify the pricing option (transfer price or PO price) separately for asset and expense items.Logic for Transfer Price Overview of Intercompany Invoicing 9 . For procuring flow. Logic for transfer price determination for shipping flows is explained in Figure .

System looks for the price of the ‘* item’ (i. configured item) and creates one invoice line for configured item. configured item) and creates one invoice line for configured item. You need to setup a modifier of type “Freight and Special Charge List” and define the freight charge for the “Freight Item”. configured item). to generate logical transactions and for raising the intercompany AR invoice. configured item) and creates one invoice line for configured item. Not Supported. Ensure that the API returns transfer price along with currency code. then build your custom logic to fetch the cost price. Please ensure that the transfer price is not 0. system ignores it. Global Procurement and Advanced Accounting set to ‘Yes’. You need to create a price list by rolling up the price of options and model (manually). System looks for the price of the ‘* item’ (i. You will be able to create an intercompany AR invoice but will not be able to create an intercompany AP invoice resulting in intercompany reconciliation discrepancy. Logic If profile "INV: Use Model & Options for Configuration Pricing" is ‘Yes’. Internal Orders with Advanced Accounting set to ‘No’. You need to define an inventory item with user type as “Freight”. Transfer Price for ATO / PTO items Oracle uses the same logic as mentioned in figure 9. System looks for the price of the ‘* item’ (i.pls located at $INV_TOP/patch/115/sql. oracle uses the following logic to determine the transfer price and subsequent AR invoicing.get_transfer_price and the name of the file is INVICIVB. Price of options is not mentioned. use price of model and price of options and create invoice lines for each model and option. Auto-invoice will apply freight only if you set ‘Allow Freight’ field to ‘Yes’ in the AR transaction type defined at the intercompany transaction relationship between two operating units. if you want to use the cost price as the transfer price.You can make use of the external API feature of the intercompany invoicing to develop your own custom logic for determining transfer price. Scenario Drop Shipment Sales Order and Advanced Accounting set to ‘No’. Drop Shipment Sales Order and Advanced Accounting set to ‘Yes’. If profile is "No" use configured item's price and create one invoice line for configuration item. Oracle expects that the transfer price should be greater than 0.e. Freight is a line Overview of Intercompany Invoicing 10 .e. You need to create a price list by rolling up the price of options and model (manually). Even if you maintain a price for the ‘* item’ (i. then system rolls up the price of model and price of options and creates one invoice line for configuration item. Internal Orders with Advanced Accounting set to ‘Yes’.e. In addition to the above. System rolls up the price of model and price of options and creates one invoice line for configuration item. If the price of the ‘* item’ is not found or is equal to 0. Global Procurement and Advanced Accounting set to ‘No’.. The name of the external API is MTL_INTERCOMPANY_INVOICES. Then assign this item in the profile “Tax: Invoice Item as Freight”.e. You need to set the profile “QP: Security Control” to ‘Off’. Freight Freight charges can be added to the intercompany invoice only for shipping flows. For example.

in the Tax Codes window. an office in an EU state paying an intra EU invoice can assign a VAT tax and a corresponding Offset tax to an invoice. Currency You have different currency options to be used in an intercompany invoice. then the system will create a line item of type ‘Freight’. stopping at the first place where it finds a tax code: 1. Auto-invoice will apply taxes only if you set ‘Tax Calculation’ field to ‘Yes’ in the AR transaction type defined at the intercompany transaction relationship between two operating units. You can then define a user-defined tax called VAT 10 that has a 10% rate. system creates a default offsetting tax distribution for each tax distribution on an invoice. For example. Tax You can also apply tax to intercompany invoices. so it can record and report VAT taxes without actually paying any to other operating unit. A separate business flow should be identified to treat other charges like insurance. Ship-To-Site Bill-To-Site Customer Item If you do not want tax to be calculated on freight lines.item on the intercompany invoice and the item to be mentioned on the invoice line is determined from the profile “Tax: Invoice Item as Freight”. 3. If the tax code on the AP invoice line has an associated offset tax and if you enabled the ‘Use Offset Tax’ check box for the supplier site. For example. You can offset the tax liability on the AP invoice for VAT purposes. AR creates a line item of type 'Line' on the invoice for the freight amount and the tax will be calculated on the freight line. 4. The attributes that determine which currency to be used in an intercompany invoice for shipping flow are the profile option “INV: Advanced Pricing for Intercompany Invoice” and “Currency Code” attribute in intercompany transaction flow. Logic for determination of Tax Code for the freight will be same as that of any other invoice line item. This will allow AR invoices to be correctly mirrored into intercompany Oracle Payables. Handling of customs duty should be treated as a separate processes from intercompany invoices. You can use offset taxes to record the value added tax (VAT) name and amount without paying VAT to other operating unit (the tax distribution and the offset tax distribution net to zero). Overview of Intercompany Invoicing 11 . make sure that the profile option “Tax: Invoice Freight as Revenue” is set to No. If the profile is set to No. 2. If this is set to Yes. You can assign the Offset 10 tax to the VAT 10 tax. For example. custom duties need to be paid on the intercompany invoices in international transactions. handling charges that affect only one organization and does not affect other organization. Auto-invoice looks for a tax code in the following order. You need to setup the same tax structures (tax codes and rates) in Oracle Receivables and Oracle Payables. you can define an offset tax code named Offset 10 that has a negative 10% rate.

System looks for this profile in the ‘From operating unit’ of each intercompany relation in the intercompany transaction flow. then system looks for the transfer price in QP. No INV: Intercompany Currency Conversion Description If set to Yes. currency will be determined by the following decision table: Flow Type Shipping Shipping Shipping Shipping Use Advanced Pricing Profile N Y Y Y Currency code in Intercompany Transaction Relationship Does not matter Shipping Operating Unit Selling Operating Unit Order Currency Code Currency Code in AR Invoice Currency Code mentioned in the price list Shipping Operating Unit Currency Code Selling Operating Unit Currency Code Sales Order Currency Code The attributes that determine on the currency to be used in an intercompany invoice for procuring flow are the profile option “Intercompany: Use Advanced Pricing” and “Currency Code” and “Pricing Option” attributes in intercompany transaction flow. then system will look into this Conversion Code for exchange rates. then system uses the static price. the currency code in the static price list is EUR and an intercompany invoice has to be created in USD. For procuring flows. For example. See the section on Transfer price.For shipping flows. If set to No. System uses this currency conversion code for conversion. currency will be determined by the following decision table: Flow Type Procuring Procuring Procuring Procuring Procuring Procuring Pricing Option PO Price Transfer Price Transfer Price Transfer Price Transfer Price PO price Use Advanced Pricing Profile N N Y Y Y Y Currency code in Intercompany Transaction Relationship Does not matter Does not matter Procuring / Shipping Operating Unit Receiving / Selling Operating Unit Order Currency Code Does not matter Currency Code in AR Invoice Purchase Order Currency Currency Code mentioned in the price list Procuring Operating Unit Currency Code Receiving Operating Unit Currency Code Purchase Order Currency Purchase Order Currency Summary Of Profiles This section summarizes all the profiles used in the intercompany invoicing flows: Profile INV: Advanced Pricing for Intercompany Invoice Values Yes. System looks for this profile in the ‘From operating unit’ of each intercompany relation in the intercompany transaction Overview of Intercompany Invoicing 12 .

then the incoming cost to the receiving org is still the sending org’s inventory cost. No Yes. If the profile is “Yes. It is recommended that you set this option to ‘Yes’ otherwise. then you can raise an intercompany invoice for internal orders. System uses this for description on the freight line as well as to retrieve the tax code applicable for the freight. Price Not As Incoming Cost”. Price As Incoming Cost No flow. It is recommended to set this profile to ‘Off’. System looks for this profile in the ‘From operating unit’ of each QP: Security Control On. system will default the profile ‘Tax : Invoice Freight as Revenue’ to ‘No’ and ‘Tax: Inventory Item for fright’ to NULL instead of retrieving the profile values.INV: Intercompany Invoice for Internal Orders INV: Use Model & Options for Configuration Pricing Yes. Off Tax: Allow Override of Tax Code Yes. then the incoming cost to the receiving org is purely based on the Transfer Price. Price As Incoming Cost”. See the section on Transfer price for ATO/PTO items. Define an inventory item with user type as ‘Freight’ and assign it here.sending org’s inventory cost If the profile is “Yes. otherwise the creation of the logical transactions will fail. The values are derived from: • Value in COGS = Sending Org’s inventory cost • Value in Inter-company Expense = Transfer Price When this profile is set to ‘Off’. No Tax: Inventory Item for Freight Overview of Intercompany Invoicing 13 . No CST: Transfer Pricing Option Yes. The accounting entries are the same as if it were a normal sales order and purchase order. Price Not As Incoming Cost Yes. Applicable only for internal orders. System looks for this profile in the ‘From operating unit’ of each intercompany relation in the intercompany transaction flow. the values are derived from: • value in cogs = sending org’s inventory cost • value in inter-company expense = transfer price • value in profit in inventory = transfer price . No Profit in Inventory account is necessary. System looks for this profile in the ‘From operating unit’ of each intercompany relation in the intercompany transaction flow. will restrict the users of other operating units to retrieve the price. System will retrieve the tax code for the freight only if this option is set to ‘Yes’ and passes it to AR for freight. If set to yes.

freight. We will now discuss External Drop Shipment from supplier to customer for Asset Items. corresponding system transactions and their accounting entries. With increased focus on core competency. following key points need to be noted: • • Identify the ‘Internal Sales Orders’. and goods are directly shipped from a supplier belonging to another business unit. However. the local arm of the global corporation engages these contract manufacturers. System looks for this profile in the ‘From operating unit’ of each intercompany relation in the intercompany transaction flow. Determine the tax applicable and develop a standardize tax codes across business units so that tax in AR invoice is mirrored correctly into AP invoice. If you want your freight lines to be taxed. then set this profile to ‘Yes’. using ‘Advanced Accounting’ option will give you more transparency in material flow. • • • • • • BUSINESS FLOWS Lets look at various business processes that need intercompany invoicing and their mapping in Oracle. Identify the parties involved in the business flow – whether the business flow cuts across multiple business units or involves only one operating unit. This profile determines whether the fright lines are invoiced as revenue lines. many corporations outsource to fulfill their market demand for non-core competency products. No intercompany relation in the intercompany transaction flow. These contract manufacturers directly supply to the global customers. Determine whether the standard options can be used. We would be looking at the business process. Determine the accounting standard about the treatment of freight – whether freight needs to be treated as revenue. You need to look at the following entities – transfer price. Determine the currency to be used in the invoice. Determine the logic for transfer price. Otherwise customize the logic for determination of the transfer price. If three or more business units are involved in a process flow. Examine the intercompany invoice entries.Tax: Invoice Freight as Revenue Yes. Often these products are manufactured by contract manufacturers and distributed by a central marketing agency. If only two business units are involved. ‘Procure-to-Pay’ and ‘Order-to-Cash’ business flows. External Drop Shipment In this business process the sales order is placed in one operating unit. When you implement intercompany invoicing. Overview of Intercompany Invoicing 14 . Identify the need for intercompany invoicing between different business units involved in the process flow. tax and currency. then you need to use ‘Advanced Accounting’ option for the intercompany transaction flow.

VC issues an intercompany receivable invoice to VJ at transfer price of 150 CNY. Assume that the customer is from Germany and places an order on Vision Operations (V1). Figure 11 . Sales order is scheduled to be shipped from a supplier of VC. Supplier sends an invoice to VC. VJ in turn sends an invoice at the transfer price to V1 and the invoice currency is USD. The order currency is EUR. Supplier ships the goods directly to the customer. 3 Run ‘Auto Create PO’ VC Purchasing Convert the requisition to the PO. VJ issues an intercompany payable to VC. VC sends an invoice at transfer price to Vision Japan (VJ) and the invoice currency is CNY. The currency of the PO is THB. 2 Run ‘Import Requisition’ VC Purchasing This program creates requisition for the sales order.Flow 1 – External Drop Shipment from supplier to Customer for Asset Items An example of external drop shipment for asset items is depicted in Figure 11. VC raises a PO on supplier. VJ issues an intercompany receivable invoice to V1 at transfer price of 20 USD. V1 issues an intercompany payable to VJ. Make sure that item has a list price setup. Source at the order line is set to External and receiving inventory Org is S1 belonging to operating unit VC.External Drop shipment System Transactions Above business steps can be mapped to following system transactions: Step Process Responsible Description 1 Enter. Purchase price is 400 THB. Order currency order management is EUR. V1 invoices the customer. External drop shipment business flow depicted in Figure 11 is summarized in the following table: Step A B C D E F G H I J Description Customer places an order on V1. Source needs to be set as ‘Order Entry’. Check the supplier Overview of Intercompany Invoicing 15 . book the customer V1 Order Record the order header and order line. Selling price is 20 EUR. To fulfill this order Vision China (VC) places a Purchase order and drop ships the goods from its contract supplier based in Thailand to the customer in Germany.

you can still run T1 intercompany AR program before S1 intercompany AR. Exchange rate could not be determined. Logical transactions are not created.e.e. The exchange rate used for the conversion of the transfer price into intercompany AR currency is based on the invoice date. This setup ensures that the AR invoice generated between VC and VJ is in CNY and between VJ and V1 is USD. Similarly. This program can be run mutually exclusive in both operating units i. 3. This receipt will be of type logical PO receipt. Transactions are not costed. make a receipt against the PO. 4. Check for freight and tax codes. the intercompany relation line between VC and VJ should be ‘Currency Code of From Operating unit’ and that between VJ and V1 should be ‘Currency Code of To Operating unit’. If the parameter ‘Defer logical transactions’ in S1 organization is marked as Yes. T1 and M1) to create the logical transactions. Run the concurrent program ‘Create Intercompany AR invoices’. After Japanese supplier ships the goods to German customer. This program populates AR interface tables. All the logical transactions need to be costed. Therefore. The currency of the intercompany AR invoice is based on the parameter ‘Currency Code’ for each intercompany relation line. Transfer price cannot be determined. it will also create logical intercompany receipt in VJ and V1. This program will create AR invoice from the data 5 6 Cost the transactions Create Intercompany AR invoices S1 Costing T1 Costing M1 Costing S1 Inventory T1 Inventory 7 Run ‘Auto Invoice Master VJ Receivables Overview of Intercompany Invoicing 16 .. This PO receipt will trigger logical transactions in other operating unit. Approve PO. S1.Step Process Responsible 4 Receive the PO S1 Inventory Description on the PO and order currency is JPY. Once the logical transactions are deferred then you can run the concurrent program ‘Create Deferred Logical Transactions’ in any of the inventory organizations associated in Intercompany Transaction Flow (i. This transaction will create logical sales order issue in V1 and intercompany sales issue in VC and VJ. Check that ShipTo for order line should be the German customer. Check that the transfer price is correctly setup.. AR intercompany invoice cannot be created for the following reasons: 1. then logical transactions are deferred. 2. This step successfully populates AR interfaces tables. You can view the logical transactions by checking the flag ‘View Logical Transactions’ in the Material Transactions form. Send the PO to the customer.

Check that the transfer price in AP invoice is same that of AR invoice.. AutoInvoice will use AR grouping rules to group various AR invoices and orders the invoice lines using line-ordering rules. you can still run V1 intercompany AP invoice program before VJ intercompany AP invoice program. then it means that the tax structure in From operating unit is not same as To operating unit. This program generates intercompany AP invoice from the data populated in the AP interface tables and you will see the intercompany AP invoice in Oracle Payables. Only those records that were successfully processed in step 7 can be imported. Run the concurrent program ‘Create Intercompany AP invoices’. you will see the intercompany AR invoice in Oracle Receivables. This program can be run mutually exclusive in both operating units i. If you do not see the tax correctly. Once this program is run successfully.Step Process Program’ Responsible V1 Receivables 8 Create AP intercompany invoices T1 Inventory M1 Inventory Description populated in AR interface tables. check that tax codes and rates are the same in both operating unit. Therefore. 9 Run ‘Expense Report Import’ VJ Payables V1 Payables Overview of Intercompany Invoicing 17 .e. This program populates AP interface tables.

MMT creates following logical transactions: 100 100 Logical Intercompany issue in S1 Logical Intercompany receipt in T1 Logical Intercompany issue in T1 Logical Intercompany receipt in M1 Logical Sales Order issue in M1 Does accounting for logical PO receipt created in VC Inventory T3 Run 'Cost Manager' VC Accural S1 Does accounting for logical intercompany issue I/C COGS VC Inventory created in S1 Does accounting for logical intercompany receipt created in T1 Does accounting for logical intercompany issue created in T1 Does accounting for logical intercompany receipt created in M1 Does accounting for logical sales order issue created in M1 T4 Run 'Auto Invoice Master Program' in I/C Receivable I/C Revenue T5 Run 'Expense Report' in T1 T6 Run 'Auto Invoice Master Program' in T1 T7 Run 'Expense Report' in M1 T8 Run 'Auto Invoice Master Program' in M1 for raising a customer invoice 100 100 100 100 VJ Inventory I/C Accural I/C COGS VJ Inventory 1500 1500 1500 1500 V1 Inventory I/C Accural V1 COGS V1 Inventory 20 20 20 20 150 150 I/C Accural I/C Payable I/C Receivable I/C Revenue 1500 1500 2000 2000 I/C Accural I/C Payable M1 Receivable M1 Revenue 20 20 25 25 2.Accounting Transactions 1.00 4. Accounting entries are as follows: Time Transaction Description Vision China (CNY) Particulars Debit Credit Accounting Transactions Vision Japan (JPY) Particulars Debit Credit Vision Operations (USD) Particulars Debit Credit T1 Receipt in S1 Inv Org T2 Run 'Cost Manager' T2 Deliver in S1 Inv Org Receiving Transaction Processor runs and creates 'Receive' Transaction Does accounting for the receipt transaction VC Clearing Accural Receiving Transaction Processor runs and creates 'Deliver' Transaction Material Transaction Processor runs and creates 'Logical PO receipt' If the flag 'Defer Logical Transactions' in S1 is Yes.00 10.00 0.80 Overview of ntercompany Invoicing 18 . Exchange Rate is as follows: From USD CNY CNY USD To JPY JPY THB EUR Exchange Rate 100.

Corporations draw the following benefits from shared procurement office: • • • • • Leverage buying volume by consolidating demand across organizations Standardize terms and conditions across all enabled organizations Centralize supplier relationship management Transact across international borders through foreign subsidiaries/shared service centers Automated and flexible funds settlement between the buying org and using org (PO Price/Transfer Price) Primarily. Vision Singapore (VS) acts as a shared procurement office for all the operating units across the world for commodities. these centralized Shared Service Centers generally have two responsibilities: • • negotiate contracts with suppliers execute purchasing transactions on behalf of all other business units in the enterprise We will discuss the Global Procurement of asset items with inventory destination and accrue on receipt in detail.Global Procurement (Central Procurement) Most of the multi-national companies consolidate procurement functions for all global business units into one or multiple Shared Service Centers. It aggregates its global requirement and leverages this buying volume for better contracts with the supplier. Figure 14 . Flow 3 – Global Procurement of asset items with inventory destination and accrue on receipt Central Procurement shared services is depicted in Figure 14. It centrally plans for the material and places a Purchase Order on the supplier with deliveries to be made in each manufacturing plant across the globe. A manufacturing plant will receive the material for the Purchase Order placed by VS.Central Procurement Overview of ntercompany Invoicing 19 .

2 AutoCreate PO VS Purchasing VC runs AutoCreate PO process. VS checks the supplier. Note that it is not the shared service. For using Blanket Purchase Agreement. If the shared service Purchase Organization has already raised a Blanket Purchase Agreement. VC issues an intercompany payable to VJ. Price in the intercompany invoice is 50 CNY. list all the requesting organizations.Central Procurement business flow depicted in Figure 14 . Ship To should be S1. Purchase Price is 700 JPY. but the requesting organizations that run the AutoCreate PO. PO price and approves the PO. Therefore in S1 you will see both logical as well as physical PO receipt transactions. The price in the intercompany invoice is same as the Price in the Purchase Order. System Transactions Above business steps can be mapped to following system transactions: Step Process Responsible Description 1 Purchase Requisition VC Purchasing VC raises a purchase requisition. then logical transactions are deferred. Price in the intercompany invoice is 10 SGD. If the parameter ‘Defer logical transactions’ in S2 organization is marked as Yes. which results in a PO in VS. In this case list.Central Procurement is summarized in the following table: Step A B C D E F G H Description VC raises a purchase requisition resulting in a PO in VS VS communicates the PO to the supplier with S1 as Ship To. The price in the intercompany invoice is same as the Price in the Purchase Order. The currency of the invoice is SGD. Supplier sends the invoice VS. Once the logical transactions are deferred then you can run the concurrent program ‘Create Deferred Logical Transactions’ in any of the inventory 3 4 Approve PO Receive the material VS Purchasing S1 Inventory Overview of ntercompany Invoicing 20 . then running a AutoCreate in the requesting organization will create a release for the Blanket Purchase Agreement in Purchasing Org. requesting VS to raise a PO. you need to do the following: 1. 2. The currency of the invoice is CNY. logical intercompany receipt in T1and S1 and logical PO receipt in S2. This will create physical PO receipt followed by logical intercompany issue transactions in S2 and T1. VJ issues an intercompany receivable invoice to VC at PO price. which runs the AutoCreate Concurrent program. Ship To. Vision China is the requesting Org and Vision Singapore is the Purchasing Org. VJ issues an intercompany payable to VS. VS issues an intercompany receivable invoice to VJ at PO price. Receive the material in S1against the Purchase Order. Mark the blanket purchase agreement as ‘Global’. Supplier supplies goods to the manufacturing plant (S1) of VC. In Enable Organizations.

Logical transactions are not created. This successfully populates AR interfaces tables. 4. You can view the logical transactions by checking the flag ‘View Logical Transactions’ in the Material Transactions form.e. then it means that the tax structure in From operating unit is not same as To operating unit. Run ‘Create Intercompany AR invoices’. The tax codes should be spelled the same with matching upper case and lower case. AR intercompany invoice cannot be created for the following reasons: 1. Check for freight and tax codes. If you do not see the tax correctly.Step Process Responsible Description organizations associated in Intercompany Transaction Flow (i. Only those records that were successfully processed in step 6 can be imported. you will see the intercompany AR invoice in Oracle Receivables. check that tax codes and rates are the same in both operating unit. Once this program is run successfully. All the logical transactions need to be costed. This program generates intercompany AP invoice and you will see the intercompany AP invoice in Oracle Payables. Therefore. This program populates AP interface tables. 2. Transactions are not costed. The currency of the intercompany AR invoice is based on the parameter ‘Currency Code’ for each intercompany relation line. The exchange rate used for the conversion of the transfer price into intercompany AR currency is based on date the invoice date. S1. Transfer price cannot be determined. AutoInvoice will use AR grouping rules to group various AR invoices and orders the invoice lines using line-ordering rules. Check that the transfer price is correctly setup.. 5 6 Cost the transactions Run ‘Create Intercompany AR invoices’ VC Costing VJ Costing VS Costing VS Inventory VJ Inventory 7 Run ‘Auto Invoice Master Program’ VS Receivables VJ Receivables 8 9 Run ‘Create Intercompany AP invoices’ Run ‘Expense Report Import’ VJ Inventory VC Inventory VJ Payables VC Payables Overview of ntercompany Invoicing 21 . T1 and S2) to create the logical transactions. 3. Check that the transfer price in AP invoice is same that of AR invoice. Exchange rate could not be determined. This program populates AR interface tables.

00 Overview of ntercompany Invoicing 22 .Accounting Transactions Accounting entries are as follows: Exchange Rate is as follows: From SGD SGD To JPY CNY Exchange Rate 70.00 5.

minimizing stock outs etc. In these cases. negotiating with carriers. VJ issues an intercompany payable invoice to VC at transfer price. Vision Operations (V1) books the sales order and VC ships the goods to customer. VC invoices Vision Japan (VJ) at transfer price and VJ in turn invoices V1 at transfer price. VJ issues an intercompany receivable invoice to V1 at transfer price of 20 USD. V1 issues an intercompany payable invoice to VJ at transfer price. V1 invoices the customer. goods are only financially transferred from manufacturing company to the sales company without goods physically passing through sales organization. planning the deliveries. VC issues an intercompany receivable invoice to VJ at transfer price of 150 CNY. S1 ships the goods to the customer.Central Distribution Central Distribution business flow depicted in Figure 15 .Central Distribution is summarized in the following table: Step A B C D E F G H Description V1 receives customer order and books it. Currency of the invoice is EUR. Often you will find that sales organization is different from the distribution organization. V1 pick releases the sales order to S1 in operating unit VC. Vision China (VC) is the central distribution company for the entire Vision group of companies. We will discuss Internal Drop Shipment of asset items in detail: Flow 12 – Internal Drop Shipment of asset Item For example.. This kind of business model allows each organization to concentrate on their core operations and a separate P&L statement can be made for the organization.Internal Drop shipment (Central Distribution) Most multi-national companies have highly focused companies in their network of company. Overview of ntercompany Invoicing 23 . Sales price is 25 EUR. V1 raises a sales invoice and sends it to the customer. with each company specializing in their area of operations. Central distribution organization concentrates on the increasing efficiencies in the logistics by optimizing the route. Figure 15 .

Logical transactions are not created. Therefore. the intercompany relation line between VC and VJ should be ‘Currency Code of From Operating unit’ and that between VJ and V1 should be ‘Currency Code of To Operating unit’. AutoInvoice will use AR grouping rules to group various AR invoices and orders the invoice lines using line-ordering rules. you can still run VC intercompany AR program before VJ intercompany AR. Order currency order management is EUR. 2. If the logical transactions are deferred then. 3 Ship Confirm the delivery S1 Shipping Allocate the material for this move order and transact the move order. This successfully populates AR interfaces tables.System Transactions Above business steps can be mapped to following system transactions: Step Process Responsible Description 1 Enter. 3. the inventory manager in each operating unit needs to run ‘Create Deferred Logical Transactions’. Transactions are not costed. Source at the order line is set to Internal and shipping Org as Suzhou manufacturing plant (S1) in China. Check for freight and tax codes.. This transaction will create logical intercompany receipt and issues in T1. 2 Run ‘Pick Release Sales V1 Order This program creates a move order in S1 for shipping Order’ management the goods. Exchange rate could not be determined. Check that the transfer price is correctly setup. 4. AR intercompany invoice cannot be created for the following reasons: 1. book the customer V1 Order Record the order header and order line. 4 5 Cost the transactions Create Intercompany AR invoices VC Costing VJ Costing V1 Costing VC Inventory VJ Inventory All the logical transactions need to be costed. This program populates AP interface tables. Transfer price cannot be determined. The currency of the intercompany AR invoice is based on the parameter ‘Currency Code’ for each intercompany relation line. This setup ensures that the AR invoice generated between VC and VJ is in CNY and between VJ and V1 is USD. You can view the logical transactions by checking the flag ‘View Logical Transactions’ in the Material Transactions form. you will see the intercompany AR invoice in Oracle Receivables. This program can be run mutually exclusive in both operating units i. logical issues in S1 and M1. Run ‘Create Intercompany AR invoices’.e. Only those 6 Run ‘Auto Invoice Master Program’ VC Receivables VJ Receivables 7 Create AP intercompany VJ Inventory Overview of ntercompany Invoicing 24 . The exchange rate used for the conversion of the transfer price into intercompany AR currency is based on date the invoice date. Once this program is run successfully.

Step Process invoices Responsible V1 Inventory 8 Run ‘Expense Report Import’ VJ Payables V1 Payables Description records that were successfully processed in step 6 can be imported. then it means that the tax structure in From operating unit is not same as To operating unit. Overview of ntercompany Invoicing 25 . check that tax codes and rates are the same in both operating unit. If you do not see the tax correctly. Therefore.e.. The tax codes should be spelled the same with matching upper case and lower case. Check that the transfer price in AP invoice is same that of AR invoice. you can still run V1 intercompany AP invoice program before VJ intercompany AP invoice program. This program can be run mutually exclusive in both operating units i. This program generates intercompany AP invoice and you will see the intercompany AP invoice in Oracle Payables.

80 Overview of ntercompany Invoicing 26 .00 0.Accounting Transactions Accounting entries are as follows: Exchange Rate is as follows: From To USD JPY CNY JPY USD EUR Exchange Rate 100.00 10.

Central manufacturing facility but multiple distribution centers. It creates an internal requisition. For example. System Transactions Above business steps can be mapped to following system transactions: Step Process Responsible Description 1 Run Mi-Max Planning M1 Inventory Min-Max planning will generate an internal requisition Report depending on the Min-Max setting and on-hand quantity. in automobile industries critical assemblies like engine and gear assemblies are produced in a central manufacturing location globally. • The demand is mostly generated by a min-max planning at the source organization.Internal Orders As said earlier. This internal requisition is transferred as internal sales order for Vision China (VC). request Overview of ntercompany Invoicing 27 . Vision Operations has a distribution center at Seattle. Currency of the invoice is USD. Figure 16 . You will find two common scenarios that need internal fulfillment from another operating unit: • Manufacturing operations are spread out geographically. in Figure 16 Internal Orders. advanced accounting option is not available for internal sales orders. Seattle warehouse follows Min-Max planning for replenishment and places an internal sales order to replenish the goods from Suzhou manufacturing plant in China. V1 issues an intercompany payable to VC. M1 receives the material. but final assembly is done in each country. Internal fulfillment business flow depicted in Figure 16 . you cannot use an intermediate financial node for this flow. VC issues an intercompany receivable invoice to V1 at transfer price.Internal Fulfillment A common business practice in multi-national companies is internal fulfillment. 2 Run ‘Import Requisition’ V1 Purchasing Import the internal requisition. VC pick releases the internal sales order to Suzhou manufacturing plant (S1) S1 ships the material to M1. Therefore.Internal Orders is summarized in the following table: Step A B C D E Description Vision Operations (V1) runs a Min-Max planning report for Seattle Manufacturing (M1). For example.

4. Once this program is run successfully. Receive the goods. The currency of the intercompany AR invoice is based on the parameter ‘Currency Code’ for in intercompany relation line. Book the order. Run ‘Create Intercompany AR invoices’. No intercompany invoice will be created if the shipping network is of type ‘Direct Transfer’. which are not supported by the system. AR intercompany invoice cannot be created for the following reasons: 1. You have defined multiple intermediate nodes. The tax codes should be spelled the same with matching upper case and lower case. Check that the intercompany price list is setup properly so that the price on sales order is correct. The exchange rate used for the conversion of the transfer price into intercompany AR currency is based on date the invoice date. you will see the intercompany AR invoice in Oracle Receivables. Check that the shipping network between S1 AND M1 is of type ‘In-Transit’. Pick release creates a move order and then allocate the material. Check that the source is internal with shipping org as S1. This will populate OE interface tables. This program populates AP interface tables. Check that the transfer price is correctly setup. This program generates intercompany AP invoice and you will see the intercompany AP invoice in Oracle Payables. Exchange rate could not be determined. This successfully populates AR interfaces tables. 2. then it means that the tax structure in From operating unit is not same as To operating unit. Being aware of these scenarios will help in modeling the intercompany Overview of ntercompany Invoicing 28 . Check that the transfer price in AP invoice is same that of AR invoice. Therefore. 3. 6 7 Pick Release the Sales Order Confirm shipment of the goods Receive the goods Cost the transactions Create Intercompany AR invoices S1 Shipping S1 Shipping 8 9 10 M1 Inventory S1 Costing S1 Inventory 11 12 13 Run ‘Auto Invoice Master Program’ Create AP intercompany invoices Run ‘Expense Report Import’ S1 Receivables M1 Inventory M1 Payables SCENARIOS NOT SUPPORTED IN INTERCOMPANY TRANSACTIONS Before setting up intercompany transaction flow. An internal sales order is created. check that tax codes and rates are the same in both operating unit. The internal sales order is pick released. If you do not see the tax correctly. Transactions are not costed. Check for freight and tax codes. Check that the cost manager is running and has costed the internal sales order issue. Transfer price cannot be determined.Step 3 4 5 Process Approve Internal Requisition Run ‘Create Internal Order’ Run ‘Order Import’ request Responsible V1 Purchasing V1 Purchasing VC Order Entry Description Approve Internal Requisition. you need to run through the following scenarios.

system will not create any logical transactions. Scenario 3 – Drop Shipment and Intercompany transactions for Non-invoiced items In some cases of central distribution. However.Internal Sales Orders Flow Not Supported Scenario 2 – Drop Shipment and intercompany transactions for Non-Shippable. Therefore. System ignores the intercompany transaction flow and errors out. Overview of ntercompany Invoicing 29 . non-stockable or non-transactable items. Non-Stockable and Non-Transactable items You cannot create intercompany invoices if the business flow between operating units involves non-shippable. the central distribution warehouse invoices the selling operating unit for the shipment. it is necessary to ensure that the items involved in the business flow do not have these attributes. You will be able to generate intercompany invoices only when it involves two operating units without any intermediate operating units.transactions better. promotional items are shipped to the customer from the central warehouse and customers are not invoiced for such shipments. Selling operating unit pays the shipping operating unit for the shipment but does not invoice the customer. This may require re-engineering some of the business practice like using purchase price for intercompany invoicing over using transfer pricing or determining your customization needs. Figure 17 . Intercompany transactions does not support following scenarios: Scenario 1 – Internal drop shipment from an internal organization to another internal organization Though you can setup intercompany transaction flow with intermediate nodes for internal drop shipment from one internal organization to another internal organization.

you cannot raise an intercompany invoice if the item is non-invoicable. system does not support intercompany invoicing for the above scenario. in the receiving operating unit’s warehouse the inventory is consigned and the supplier is paid only when the consigned inventory is transferred to the regular inventory. Scenario 6 – Consigned inventory for Global Procurement flows In some Global procurement scenarios. However. Scenario 8 – Retroactive pricing in Global Procurement Retroactive pricing is supported in purchasing organization but the changes would not be communicated to the receiving organization. In this scenario. sales credit are not available for either shared services operating units or for the intermediate operating units. For each consumption by the receiving organization. Scenario 9 – P-Cards in Global Procurement You cannot make use of P-Cards in Global Procurement scenarios. the promotional item is made as non-invoicable item so that sales order can be closed. In this scenario. However. However. then you cannot use transfer price for intercompany invoicing. Scenario 10 – Advanced Sales functionality between operating units Usually. you have only one option – use purchase price on the PO as the price on the intercompany invoicing. However. Scenario 7 – Handling encumbrances in Drop Ship and Global Procurement flows Buyers generally encumber funds on a blanket PO or blanket agreements to reflect the commitments to a certain level of spending. you cannot encumber funds for a Purchase Order if the receiving warehousing belongs to another operating unit or is part of an external drop shipment scenario. Scenario 4 – Global Procurement for projects with expense destination and transfer pricing In Global procurement scenario if the procurement is for a specific project and task and the destination type is expense. Scenario 5 – Global Procurement with shop floor destinations and transfer pricing If the procurement is made with shop floor as destination. the operating units involved engage in a customer-supplier relationship. Advanced sales functionality like credit checks. Inventory in the receiving organization will not be revalued based on the latest retroactive price. The service providing operating unit need to market its service to other operating units and compete with other operating units for providing the service. the procuring organization raises an intercompany invoice. then you cannot use transfer pricing for intercompany invoicing. System currently does not support the business flow for the items that are noninvoicable. central procurement office places a PO with a delivery in a warehouse in another operating unit. Overview of ntercompany Invoicing 30 .To prevent the selling operating unit from raising AR invoice for the customer. you have only one option – use purchase price on the PO as the price on the intercompany invoicing.

Oracle Purchasing Users Guide. However. these intercompany invoices attract various duties (like customs duty. It describes various scenarios that can be configured in Oracle applications. This paper should give sufficient information that you need to begin setting up the intercompany transactions involving two or more operating units. Oracle Order Management Users Guide. 11.5.5. Oracle Accounts Receivable Users Guide. you cannot raise an intercompany invoice for this transaction. ADDITIONAL RESOURCES • Intercompany Invoicing: How to Set Up and Use this Feature within Oracle Applications.) depending upon the parties involved in the invoicing. Scenario 12 – Inter Org Transfers You cannot raise an intercompany invoice in the following cases: • • Internal transfers through internal requisition – internal sales order flow with Direct Transfer. May 2002. May 2000. the underlying transactions performed using Oracle applications need to be carefully planned and managed.10.5. The advanced cross border trade management softwares fulfill these taxation requirements and currently system offers only rudimentary support for the complex taxation involved in intercompany invoicing. Oracle Inventory Users Guide.. Oracle Accounts Payable Users Guide.10. July 2005.Scenario 11 – Advanced cross border trade management Multi-national companies often practice intercompany invoicing and the intercompany invoicing is guided by specific regulations of each country. 11. 11. Oracle White Paper. Oracle White Paper.5.10. CONCLUSION This paper describes implementation of intercompany invoicing in multi-national organizations. 11. Inter Org transfers in inventory between inventory orgs belonging to different operating units (not using internal requisition – internal sales order flow). The large amount of data that needs to be set up must be carefully managed as well. Intercompany Invoicing and Advanced Pricing Integration. counter-veiling duty. Sometimes. This is true irrespective of the transfer type in the shipping network.5. Intercompany Transactions. Oracle White Paper. Scenario 13 – Internal Orders with expense destination You can raise an internal requisition with expense destination and subsequently create a sales order and ship the item. Since the process as a whole involves many departments in different operating units.10. surcharges etc. 11. • • • • • • • Overview of ntercompany Invoicing 31 .10.

Oracle is a registered trademark of Oracle Corporation. CA 94065 U. Worldwide Inquiries: Phone: +1.Overview of Intercompany Invoicing July 2005 Author: Sharma Manda Contributing Authors: Karthik Gnanamurthy and Krish Ratnam Koothan Oracle Corporation World Headquarters 500 Oracle Parkway Redwood Shores. All other product and service names mentioned may be trademarks of their respective owners.506.650.S.7000 Fax: +1. Copyright © 2005 Oracle Corporation All rights reserved.650. .com Oracle Corporation provides the software that powers the Internet.oracle.7200 www.A.506. Various product and service names referenced herein may be trademarks of Oracle Corporation.

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