Intercompany Project Invoicing in AX 2012 R3 (Part 1)


Since the initial release of Dynamics AX 2012 in late 2011, we have invested a lot to make projects easier to use in multi-company scenarios. In the 2012 feature pack, we enabled users to report time against projects in other legal entities. In the R2 release, we added the ability to resource projects with employees of other companies. In R3, we are taking it one step forward and enabling legal entities to invoice each other for time, employee expenses and vendor expenses. This is especially important when a company has subsidiaries in multiple countries and has tax liability for sharing resources. In R2, intercompany cost and revenue was handled through ledger transactions in both companies at the time when the cost was recorded. The process in R3 allows for companies to adjust the amounts charged between companies and aligns the timing of the intercompany revenue in the resourcing company with the revenue accrued in the contracting company.

Below is an overview of the intercompany project invoicing scenario in R3:

In this scenario, the project and contract with the external customer is being run in the US legal entity (the CLE or contracting legal entity). Resources in the 2 RLEs (resourcing legal entities) enter timesheets against the project in the CLE. However, there is no intercompany revenue or cost recorded immediately. Instead, the RLEs periodically generate intercompany invoices for the CLE from the time and expenses recorded by the employees. When this IC invoice is approved and posted, it generates a corresponding vendor invoice in the CLE. When this vendor invoice is posted, the cost is recorded against the project in the CLE and can be invoiced to the external customer.

Let's start with the setup required to get the process configured.

First, make sure you have an intercompany trading relationship between the legal entities. This means that you have a customer record for the contracting company in the RLE and a vendor record for the resourcing company in the CLE. On either record, you should go the general tab and click on Intercompany. Here I've set up a trading relationship between SFRA (CLE) and SUSB (RLE).

Next, you will need to enable intercompany in the resourcing company. This is done in the Project management and accounting parameters form. First, check the option to have the legal entity property show up on timesheet and expense report lines. The for each CLE, you need to add a record to indicate whether to accrue revenue before invoicing. You also need to specify a default hour and expense category to handle cases where the two companies do not share project categories. Project categories are important as they are used to drive item tax groups on both sides.

 

You will then specify the ledger accounts used for posting the intercompany cost of loaned resources and the intercompany revenue received. This is done in Project management and accounting > Setup > Posting > Ledger posting setup.

Next, set up transfer pricing between the companies. This is done from Project management and accounting > Setup > Prices > Transfer price.

In previous releases, you had to specify an hourly rate for each employee in the RLE that you wanted to make available. In R3, we've added six transfer pricing models. There are four models for a fixed amount or based on the cost price. These work the same way as the project hour sales pricing models:

  • Quantity
  • Contribution ratio
  • Charges percentage
  • Charges amount

There are also two models based on the final sales price for the external customer in the CLE. These models allow you to base RLE revenue on the amount that the CLE will charge:

  • Percentage of sales price
  • Amount below sales price

Finally, you will need to make sure you have set up the hour unit of measure. This will be used when the vendor invoice is generated in the lending company. Click Organization administration > Setup > Units > Units and make sure there is a unit in the list with Fixed unit assignment checked and the Fixed unit dropdown set to “Hours”.

 

That's it for setup. Next time, I'll walk through an example transaction flow.

Comments (14)
  1. Jon Magnusson says:

    Can you tell us how the default dimensions are defaulted when posting in the resourcing (lending) legal entity these would be intercompany revenue and project cost?

  2. Guy Woestenborghs says:

    You make the statement: "In R3, we are taking it one step forward and enabling legal entities to invoice each other for time, employee expenses and vendor expenses."

    In R2 CU7 this already operational for timesheets and also intercompany-project-expenses can be registered.

    What about vendor expenses: will it be possible to enter an invoice journal in AP and link it immediately to a project of another company? In R2 CU7 an error message "Project not allowed for intercompnay" pops up.

  3. You are correct, Guy. In CU7, we added this for timesheets and expense reports. In R3, we extended this to work for vendor invoices (not invoice journals).

  4. Hi, Jon. Since there is no project in the lending company, we do not hit the project cost account. We post against intercompany cost and the payroll allocation accounts. The intercompany cost will be compensated by intercompany revenue when the resulting intercompany customer invoice (FTI) is posted. In the borrowing company, when the intercompany vendor invoice is posted against project cost and will get the dimensions values from the project.

  5. Emilien Muller says:

    Hi Brian,

    Thanks a lot for this interesting article. We are currently implementing AX 2012 CU7 for a company and we are looking at all AX interco project features in detail.

    Is it possible to use interco hours through a project which is defined (on Project Group) as Never Ledger for Costs – hours? I'm asking this because we are facing the following issues:

    1. As you mentionned, when hours are posted in the lending company, the posting is intercompany cost against payroll allocation. Is there a way to bypass this accounting entry (eg: with zero amounts)?
    2. When we post the vendor invoice in the borrowing company, the accounting entry is Never Ledger against Vendor Balance. This "Never Ledger" entry is curious, isn't it? Additionnaly, the costs are not allocated to the project and no accruals are posted while it should (Accrue revenue – hours enabled on the Project Group).

    3. Finally (and probably linked to the second point), we are not able to invoice the final Customer. The hour transaction does not appear on the invoice proposal.

    Thanks a lot for your very appreciated answers.

  6. Hi, Emilien. I don't think we really tested the intercompany with the Never Ledger project group setting. Since the group settings are defined in the contracting legal entity, they do not drive the postings in the resourcing company. We would need to define another set of rules/parameters in the resourcing company. However, you should still be able to bill these transactions after they are transferred. Can you give me a little more detail around your scenario and use of Never Ledger? Are you not posting the costs as you expect the actual employee costs to come through payroll?

  7. Emilien Muller says:

    Hi Brian,

    Thanks for your reply. Yes, our Customer doesn't want to post costs of hour to G/L as those are covered through payroll. However they still want to track costs of hour through project subledger.

    For my issue #1, we have found a way to solve it by setting a specific cost price when Customer is the Contracting entity. The payroll allocation entry is then posted with zero amount.

    For issues #2 and #3, we opened a support request with MS and just received a hotfix that we still need to test. According to MS, issue should be solved in R3.

  8. Chathurika says:

    Hi Brian,

    Thank you for this post. Should those companies should be in single data base. If not how the communication is done between different databases.

  9. This feature assumes that companies are in the same database/instance. If not, you will need to synchronize master data and route transactions between the instances. This is the same for any multi-AOS scenarios.

  10. lally says:

    Hi Brain ,

    You mentioned that route transactions between the instances .

    Does it is possible to route the transactions between the instances ( as per my knowledge only master data can synchronize )  ?

    Could i know that what kind of transactions we can route  between instances in the project module ?

    Thanks in advance

  11. There is nothing built into AX for sending transactions between instances. You would have to use something like BizTalk and the AIF document services.

  12. Lally says:

    Hi Brian,

    Thanks a lot for this interesting article. We are currently implementing AX 2012 R3 for a company and we are looking at all AX inter company project features in detail.

    i need help for the  following issues:

    1. As you mentioned, when hours are posted in the lending company, the posting is inter company cost against payroll allocation and same way revenue accounts also post.
    2. When we post the vendor invoice for stocked item/ non stocked in the Lending  company for the borrowing project ,the accounting entry will be posted .

    3. Same way for expense report also .

    Here i am not aware of the ledger entries , i mean which ledger accounts will effect when we post the about type of transactions like inter company TS , VI , ER

    Is there any MS manual or blog which will explain about these entries or could you blog about these ledger entries effect as it is very important to client how the entries posting .

    Thanks a lot for your very appreciated answers.

  13. Lally, the account postings are documented in the online help for the Project Ledger Posting setup form. There are no cross-company postings – the main account is determined by the posting type + project group and/or transaction category.

  14. MansoorF says:

    Hi Brian,

    After the intercompany projects sales invoice has been posted, how do we go about raising credit note for this same invoice in the Resource legal entity or from the other side if the Contract legal entity (CLE) wants to raise a credit note for the vendor intercompany? Basically need to know how to create credit notes for the intercompany timesheet invoicing in Dynamics AX 2012R3?

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