How To Pay a NetSuite Vendor Bill from a Different Subsidiary

This article is relevant if you wish to use NetSuite to record vendor bills in one subsidiary but pay them from another subsidiary.

Background

In a recent NetSuite implementation, an accounting firm was helping its client design a large multi-subsidiary structure supporting accounts payable operations. The client’s business acts as a super fund to support speculative investments which are constituted across many subsidiaries. Many of the subsidiaries do not have actual cash.

In our discussions, I offered that NetSuite does not natively support a “Shared Services Payment Model”. The idea in this model is that an expense and related accounts payable is recorded naturally in the responsible entity. However, the vendor bill is going to be paid out of another entity. Thus, in helping the accounting firm understand NetSuite’s architecture, I developed a narrative that I suspect would be valuable for the larger community.

Does NetSuite’s Shared Vendor Bills Bundle Offer a Solution?

NetSuite offers a bundle called “Shared Vendor Bills”, which by title, would lead you to believe there is a solution. However, for the requirements I outlined above, it does not. The idea in that bundle is that you record a vendor bill and then describe an allocation schedule to push the values to other entities. Our requirements are different. We want to record vendor bills in the related entity naturally as it may not be clear which subsidiary will actually pay it at the time of bill entry.

See my 2019 article, Understand NetSuite Allocation Methods and Explore Shared Vendor Bills, which includes a reference video that discusses the bundle’s strengths and weaknesses.

Two Accounting Models to Drive NetSuite Shared Services Payment Model

I will outline two models that can solve the challenge. While I suspect there may be more models, the following two will help demonstrate how to think about the problem and opportunities to streamline the solution.

1. Conventional “Intercompany Journal Entry” Model: use an intercompany journal entry to move the payable in one entity to another entity.
2. Alternative “Ease the Burden” Model: use virtual cash accounts to reflect the request for shared payments with month-end reclass and reconciliation.

The primary consideration for this solution must account for the fact that NetSuite forces bank (cash) general ledger accounts to be subsidiary specific.

Conventional “Intercompany Journal Entry” Model

In the conventional intercompany model, we attack the problem directly. For each vendor bill, our objective is to move the accounts payable from one entity to the paying entity. The idea is that the vendor is set up to work across multiple subsidiaries. A journal entry is recorded to account for the due to / due from accounts that record the intercompany payable and receivable. NetSuite’s intercompany journal entry structure allows multiple subsidiaries to be recorded in one transaction entry supporting our requirement. Once the accounts payable is recorded in the paying entity, the vendor bill can be paid through NetSuite conventional payment operations.

The model works but has a number of issues that make it difficult to scale the operation:

1. We must set up the intercompany journal entry before we can act to pay the bill. This is cumbersome.
2. After the journal entry, the original vendor bill still remains open and needs to be applied to show it as paid.  This produces more work.
3. The accounts payable operations on the paying entity may not be within permission reach of the staff caring for the original subsidiary; a possible operational challenge.

Click the related image for the accounting and related analysis.

Alternative “Ease the Burden” Model

To demonstrate a model that focuses on an indirect approach, I developed an alternative. In this model, the goal is to make the bill payment natural to the accounting team focused on the responsible entity. Here, we use a “virtual cash” account to indicate we want it paid by another entity. Since all of the client’s payment operations are electronic, I did not need to worry about physical check operations — admittedly easing the mechanics to the solution.

The payment to the vendor is thus made by the paying entity using the “virtual cash” account as a request;  a NetSuite check is used as the record.  Here, the actual check is paid by the operating account but the debit is to a similar “virtual cash” account. In this model, we can let all the check payments accumulate. However, at period end, we need to reconcile the “virtual cash” account(s) and reclass the amounts to the proper due to / due from to respect the intercompany payable and receivable situation.

The model demands a different mindset and the following should be considered:

1. How do we get the payment instructions of the original virtual cash account to the actual cash account on the paying entity?
2. How do we confirm we are under control at all times? Since NetSuite does not support a shared “Virtual Cash” account across entities that would allow for “zero balance” control, a more creative solution is required.
3. How do we assess the “virtual cash” situation across entities so we can produce the period end reclass entry?

Click the related image for the accounting and related analysis.

NetSuite Platform Automation

The good news is that both models can be automated by leveraging the NetSuite platform. The key is to strike the balance between the benefit and effort.  As such, the concepts above and its implementation is one of my firm’s core competencies.

If you found this article meaningful, feel free to receive notifications as I produce new posts. If you have a challenging NetSuite accounting concern where you have been told, “NetSuite does not support that”, let’s have a conversation.

Marty Zigman

Holding all three official certifications, Marty is regarded as the top NetSuite expert and leads a team of senior professionals at Prolecto Resources, Inc. He is a former Deloitte & Touche CPA and has held CTO roles. For over 30 years, Marty has produced leadership in ERP, CRM and eCommerce business systems. Contact Marty to set up a conversation.

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