Intercompany reconciliation is the process of ensuring that internal transactions between legal entities within the same corporate group balance to zero. In complex fintech structures (e.g., a UK Payment Institution subsidiary and a US Tech Parent), money flows across borders constantly for funding, IP licensing, or shared services.
If Entity A records a receivable from Entity B, but Entity B does not record the payable, the consolidated books will be wrong. This "out-of-balance" state is the primary cause of delays in month-end close. Modern infrastructure automates this via "Mirror Accounting."
The "Due To / Due From" Mechanism
When a transaction crosses an entity boundary, the ledger must generate a multi-legged journal entry. Scenario: US-Parent pays a $10,000 AWS bill on behalf of UK-Sub. Manual Way: US accountant books Expense. UK accountant (hopefully) books Liability weeks later. Automated Way: The system recognizes the Entity tag. US Ledger: Credit Cash $10k / Debit "Intercompany Receivable: UK" $10k. UK Ledger: Credit "Intercompany Payable: US" $10k / Debit Expense $10k. This ensures the expense sits on the correct P&L (UK), but the cash left the correct bank (US), and the debt is tracked instantly.
Netting and Settlement
Over a month, thousands of cross-entity transactions occur. Settling them one by one via wire transfer is inefficient and costly (SWIFT fees). Netting Engine: The system aggregates the gross position. "US owes UK $5M, UK owes US $4M." Settlement: The engine calculates the net difference ($1M) and instructs a single physical wire transfer to clear the intercompany loan accounts.
