Track Intercompany Loans Using SAP's Transaction Manager Module: Part I

  • by Mary Loughran, Independent Consultant
  • Valerie Choo, Treasury Subject Matter Expert
  • November 30, 2016
Learn the process flow, the integration points with other SAP modules, and the advantages of using SAP’s Transaction Manager for intercompany loans.
Learning Objectives

Reading this article, you will learn:

  • The advantages of using SAP’s Transaction Manager for intercompany loans
  • About the functionality
  • The process flow for intercompany loans
  • The master data required
  • Integration points with other SAP modules
  • The primary transaction codes in processing intercompany loans
Key Concept
Intercompany loans are loans made from one business unit of a company to another, for various reasons. It is important to remember that intercompany loans are an asset (an investment) in one entity and a liability (debt) in another entity. As with other intercompany transactions, the accounting entries generated by the intercompany loans are eliminated from the consolidated financial statements of the group company.

There are generally two types of intercompany loans that a Treasury department may put in place:

  1. An intercompany loan to fund short-term working capital. This is normally managed through an in-house bank structure. This loan is through a zero-balance sweep structure and does not have a fixed loan amount or a fixed term.
  2. An intercompany loan to fund medium to longer term requirements. This is normally called a structured intercompany loan that has a fixed amount and a fixed term. This loan is usually put in place to provide funding for a medium to longer term or until more permanent funding can be established.

The intercompany loan process generally needs to go through a review process with different parties of the organization, particularly the Tax Department, to understand the regulatory requirements within the country of the lender and borrower with respect to such loans. The amount, tenure, and the terms of the loan require an internal review and approval process. Upon completion of that process and approval of the loan, the intercompany loan can then be entered into the SAP Treasury and Risk Management module for management and monitoring.

Using SAP’s Transaction Manager module for the tracking, accounting, and reporting of intercompany loans is a smart way to go, as it automates the processing of the intercompany loans, and integrates well into other SAP modules. We discuss the process for supporting intercompany loans using SAP’s Transaction Manager module. The example intercompany loan is a $10 million, five-year, fixed rate loan that pays interest every six months. Before covering the SAP process for intercompany loans, we explain the required master data.

Prerequisites

The functionality described in this article is included in SAP ERP Central Component (ECC), although licensing may be required to use the SAP Treasury and Risk Management module. SAP’s Transaction Manager module tracks treasury trades through their full life cycle–from trade entry to payments to month-end processing to maturity of the trades. All accounting entries related to the trades are triggered by the trades and are posted directly to the SAP General Ledger.

The primary advantages of implementing intercompany loans in an SAP system include:

  • Mitigate technical and systemic risk
  • Achieve further integration with other SAP modules
  • Improve security
  • Strengthen Sarbanes-Oxley compliance
  • Improve cash forecasting and / or cash positioning
  • Standardize and optimize treasury processes

Once the intercompany loans are in the SAP system, only minimal ongoing maintenance should be needed. All postings and payments related to the intercompany loans will be generated or triggered from the trades. The intercompany loans should only need to be modified if an issue is encountered or if the terms of the intercompany loans change.

To access the Transaction Manager in the Treasury and Risk Management functionality, follow menu path SAP Menu > Accounting > Financial Supply Chain Management > Treasury and Risk Management > Transaction Manager. SAP’s Transaction Manager is a module within Treasury and Risk Management. Within Transaction Manager, the intercompany loans functionality is in the Money Market sub-module of Transaction Manager.

Master Data

Before getting started on the processing of intercompany loans in the SAP system, we cover the master data relevant to the processing of intercompany loans.

The asset side of the intercompany loan is entered into the lending company code, and the counterparty of the trade is defined in the SAP system as a business partner, which is the entity that is on the borrowing side of the intercompany loan. Because an intercompany loan needs be entered both for the lending and borrowing entity, both the sender and the borrower need to be created as a business partner (i.e., when you enter an intercompany loan for the lending entity, the business partner is the borrowing entity and vice versa). Business partners are created or modified through transaction code BP. For user-friendliness of the system, it is important to keep the naming convention consistent. For example, entities that have intercompany loans could have associated business partners with the naming convention SUB_XXXX, where XXXX is the four-character company code number (e.g., SUB_1000). The Business Partner ID is 10 characters long.

If business partners have been created for other SAP modules, the use of the BP type is a way to categorize business partners. For example, the business partners created for treasury trades could have a BP type of SUTR so that you can distinguish them from business partners used in other SAP modules, such as the Credit Management module in the SAP system (Figure 1).


Figure 1
Business partner types functionality allows business partners to be categorized

When you assign a role to a business partner, this action opens up functionality that can be used for that business partner. All business partners to be used for trade processing must have the role of Counterparty assigned. Only business partners with the role of Counterparty (TR0151) assigned can be used in Transaction Manager.

Intercompany loans are recorded in the financial statements of individual business units. The accounting entries related to intercompany loans are eliminated from the consolidated financial statements of a group of companies of which the business units are a part using intercompany elimination transactions.

To make this happen, assign the FS0005 FS – Direct Input role to each intercompany business partner. Then, on the Control tab, set the Trading Partner field to the corresponding group company ID for the entity in the SAP system. For example, SUB_0050 should have the Trading Partner field set to C0050 (Figure 2). (To view the company ID assigned to the entity, follow menu path IMG > Financial Accounting > Financial Accounting Global Settings > Company Code > Enter Global Parameters [not shown].) After you enter a setting in the Trading Partner field, the SAP system populates the appropriate trading partner field in all related accounting entries. (Note: The document type used must have the Trading Partner indicator selected in the definition of the document type [not shown].)


Figure 2
Assign a trading partner to the intercompany business partners

Mary Loughran

Mary Loughran has been specializing in the SAP Financials area since 1997 and has worked with numerous clients throughout North America and Europe in the areas of finance and treasury. She was employed as a consultant with SAP America and was a designated expert within SAP America for treasury before she left SAP in 2004. Mary’s expertise is in the areas of SAP Treasury and Risk Management, SAP In-House Cash, Liquidity Planner, Accounts Payable, payments from SAP in general, Cash Management, and Electronic Banking. Mary was an independent consultant from 2004 to 2016. 

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Valerie Choo

Valerie Choo is a global treasury subject matter expert. She has been involved in multiple SAP Treasury and Risk Management projects such as implementing global treasury systems, consolidation of SAP Treasury and Risk Management activities, and process improvements, particularly in Cash Management Operations. Valerie’s expertise in the functional areas includes cash management back office operations, electronic bank statement processing, in-house cash, and SAP Treasury and Risk Management integration with other work streams, particularly accounts payables, accounts receivables, intercompany and tax.

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