Stepping up Management of Intercompany Transactions

As a runaway teen in Paris, Christian Louboutin became fascinated with women’s shoes after visiting a museum of African art. There he saw a sign forbidding women from wearing stilettos into a particular building, which he later said inspired him. “I wanted to defy that,” he said. “I wanted to create something that broke the rules and made women feel confident and empowered.” When he returned to Paris after spending time in Egypt and India, he became an apprentice to the shoemaker who claimed to have invented the stiletto, and in 1991, at the age of 29, he opened his first shoe store.

Thirty years later, business is booming. The company Christian Louboutin now operates 150 boutiques across 30 countries in Europe, North America, and Asia. The shops sell high-end women’s and men’s shoes, as well as bags and other accessories.

The company’s primary shipment flows are completed by its master distribution entity, CL International, which follows a specific process. But merchandise is also frequently transferred from one store to another. “A client might enter a boutique in Madrid, for example, wanting a specific model of shoe, but the shoe might not be available in her size in that particular boutique,” explains Annabella Lopes, senior treasury manager for credit risk and netting. “So the boutique in Madrid might request that the boutique in Paris transfer the product in the size the client needs. Those types of transfers happen very often.”

A few years ago, the company had no standard process for managing intercompany payments between Christian Louboutin subsidiaries. The entity sending the product would invoice the receiving entity, then wait to be paid. If a dispute arose between the two parties, there was no clear expectation for how they should resolve or escalate the situation.

The reconciliation process for these transactions was manual and time-consuming. “Emeline Marchand, Christian Louboutin’s netting and credit manager, and I worked with local accounting teams to monitor the intercompany settlement process on a monthly basis,” Lopes says. The legacy approach also resulted in a large volume of bank transactions, leading to higher fees and additional foreign exchange (FX) and float costs.

Plus, says Lopes, “we had no visibility into the exact number and scale of all the transactions taking place each month.” It became clear that because no one in the organization had a clear line of sight to all intercompany transactions, some settlements were not happening in a timely manner, and a backlog of transactions would sometimes develop.

The company decided to centralize intercompany netting in order to automate reconciliations with a solution that would work for all relevant parties, and to rationalize intercompany transactions. The team decided to implement the Coprocess (now a part of GTreasury) multilateral and multicurrency netting solution. The project was just getting under way when the Covid-19 pandemic struck, and work came to a temporary halt. However, as pandemic restrictions eased, deployment got under way.

One key component of the new system that was crucial to Christian Louboutin was the ability to automatically transfer data between the netting system and the company’s Infor M3 enterprise resource planning (ERP) system. The company worked with Coprocess to build an application programming interface (API) that would serve as a conduit for data in both directions. Then it began rolling out the solution to its various companies around the world.

Deployment has taken place in waves, in order to ease the integration, adapt to specific needs of each entity or region, and smooth the learning curve. Currently, 31 Christian Louboutin entities across the Americas and Europe are using the system.

When one of these entities sends merchandise to another, it books the invoice for those goods as a receivable in the ERP system. The entity receiving the goods books the invoice as a payable. Once a month, the ERP system transmits to the netting system, via the newly constructed API, all the intercompany transactions that have been entered since the last transmission. Then the netting system automatically reconciles the transactions. For subsidiaries that do not use M3, the project team developed upload files for monthly integration.

At the beginning of each year, the treasury team defines a netting calendar that specifies cutoff dates for every step in the netting process, from upload to discussion and dispute to settlement. They share this calendar with all participants in the process. “If either of the entities takes issue with a transaction—whether related to the currencies, the invoice amount, or concerns around receipt of the merchandise—it has a predefined time during which to dispute the transaction within the netting system,” Marchand explains. “If the entity enters a dispute, then the treasury team can postpone payment of the invoice until it is resolved. And we have a specific time period for that resolution, as well.”

If neither party disputes a transaction within the defined period (typically a couple of days), the intercompany payment is included in the netting solution’s monthly netting process, which determines how much each participating Christian Louboutin entity owes its counterparts for the month. The software provides the treasury team with an amount for settlement between each pair of entities. The treasury team discusses with the cash management team, to understand the cash capacity of each entity, then transfers funds and performs currency trades as needed.

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“Now the treasury team has access to information about all the positions resulting from the netting process,” Marchand says. “Having this visibility from end to end enables us to make sure that the entity which is transferring merchandise receives payment from the entity that is receiving the shoes, handbags, or what have you.”

Lopes reports that automated reconciliation of intercompany transactions has reached nearly 100 percent. This saves a tremendous amount of time for the local accounting teams, both on performing the reconciliations and on resolving disputes and missing invoices, which now represent a very small proportion of the total number of invoices uploaded to the system. The new process has also saved Christian Louboutin nearly 400,000 euros in fiscal year 2023 by reducing the company’s volume of FX trades, bank transaction fees, and float. The company converts an average of fewer than 25 net flows each month, versus more than 120 gross flows before this project, and the precise settlement schedule has removed float as a factor in intercompany payments.

“All the stakeholders in the entities that are participating in this new intercompany transaction process are very happy with the solution,” Lopes says. “It is saving everyone a lot of time and hassle.”

She attributes successful resolution of the company’s former challenges around intercompany transactions to teamwork. “In addition to all our various accounting teams, the treasury group worked closely with Amrane Sahraoui, our senior treasury manager for solutions and IT security, who was in charge of the technical aspects of the project,” Lopes says. “In addition, we appreciate the responsive support of the Coprocess team at every step of the project. Through collaboration, we all aligned on the potential benefits and worked well together to make this project a huge success.” Marchand adds that all the company’s treasury teams—including cash management, the netting center, and back-office operations—are working jointly to support participants throughout the netting cycle.

To get alignment on intercompany netting, those involved in the process are consistently engaging in deliberate and effective communication. “Every time we onboard a new entity,” Lopes says, “we have a phase of sharing information. We organize training sessions for a couple of weeks, where we explain the solution to make sure the entity’s team understand the benefits and how to use it. We are there at every step of the project to answer questions.

“By implementing this innovative netting solution, we have dramatically improved the communication, structure, and discipline surrounding transactions between Christian Louboutin subsidiaries,” she concludes.