New Inter-company Projects Functionality Added to Microsoft Dynamics AX 2012 R2 CU7
This article is the next installment in our series documenting some of the major new functionality enhancements that Microsoft has made for professional services firms in the Microsoft Dynamics AX 2012 R2 CU7 release. A previous blog in this series detailed the new Work Breakdown Structure paradigm. This blog will discuss new functionality in the area of inter-company project management.
The core target market for Microsoft Dynamics AX is in the upper mid-market and lower echelon of the enterprise market space. Many of the professional services firms in this target market serve a large multi-national client base of their own, and therefore have had to set up operations in foreign countries to support their clients. As such, many of the organizations that we work with have a requirement to manage multi-company projects and resource pools.
The most common scenario for these multi-company projects entails one legal entity, or company in Dynamics AX, being established as the contract-owning entity or the legal entity that has the contractual relationship with the end client. It is then common to have resources from one or more countries also working on the project. These entities are known as resource-lending entities. In the example that we show below, the US entity is the contract-owning entity that has the contractual relationship with the end client in the US, and India and Brazil are resource-lending entities, meaning that they also have team members working on the project.
It is important in these situations to ensure that revenue is being captured in the correct legal entity that is providing the services. This inter-company project accounting is one of the more complex processes that a global professional services firm has to manage since there are a number of issues that revolve around this, including revenue recognition, taxation, and other considerations.
In many organizations, the process that allows the resource-lending entities to capture the revenue for their portion of the services that were performed is to generate an inter-company invoice to the contract-owning entity, who then in turn bills the end client. In the previous version of Dynamics AX 2012 R2, there was not an actual inter-company billing model in place. Instead, the process of posting project timesheets in the resource-lending entity simply booked revenue directly into the general ledger in that entity and made the transactions available to the contract-owning entity for billing to the end client. So there wasn’t as much visibility into these cross-company transactions or relationships.
In the new CU7 release of Dynamics AX 2012 R2, Microsoft has enabled an inter-company billing model that allows you to generate inter-company project invoices from the resource-lending entity to the contract-owning entity for the effort that they have provided on the project. So it’s no longer managed behind the scenes – these inter-company transactions are very visible now. Some of the benefits of this approach include:
- More control - Since the resource-lending entities are often viewed by many organizations as more of an arms-length transaction, this inter-company invoicing process and corresponding AR/AP transactions more closely mirrors this.
- More consistency - The process for the raising invoices from the resource-lending entity to the contract-owning entity is the same process as it would be if they were invoicing their local end clients, which makes it easier on the employees that are involved in this process.
- Statutory support – This new process provides the ability to deal with local tax requirements in the foreign entities through the inter-company invoicing process.
- Transfer costs – You now gain more control over the transfer cost rules that exist between the entities, which is a common method for managing these inter-company transactions.
This new functionality will provide some solid benefits for international organizations that manage their multi-company projects in Dynamics AX.
Stay tuned for additional articles on some of the new enhancements in Microsoft Dynamics AX 2012 R2 CU7 for professional services firms.
About the Author
Andy Yeomans is Director of Business Development for sa.global, where his role is to help project-driven organizations evaluate and select ERP software systems to better manage their finances, projects, clients, and resources. Andy was instrumental in developing the organization's Microsoft Dynamics 365 industry solutions and practice area for the AE & Environmental industry. Andy has over 17 years of ERP experience and has helped dozens of AE & Environmental firms evaluate, select, and implement ERP software systems for their business.