Internal recharging: an often-overlooked tool, and wrongly so
In many companies, internal recharging of services remains a marginal issue, sometimes ignored for unclear reasons… and that’s a shame.
The confusion often stems from a lack of understanding of the difference between financial accounting and cost accounting. But it must also be recognised that sometimes it is a deliberate choice: a practical way of ‘sweeping the dust under the carpet’.
However, internal recharging has at least two major advantages:
• It identifies precisely who generates revenue and who bears the costs, enabling the right decisions to be made. • It reminds everyone that no resource is free.
After talking to many managers in the service sector, the same observation keeps coming up: the lack of systematic recharging often suits certain managers. Without numerical constraints, it becomes easier to adapt the strategy to suit oneself, to change the rules, to redefine the framework… in short, to ‘rewrite history’ according to one’s interests.
This lax approach is seriously detrimental in the medium and long term: it prevents any real awareness of the value of things and obscures the fact that, with a few exceptions, a company is not a philanthropic organisation.
Implementing internal re-invoicing means:
• Ensuring transparency: many managers are unaware of the real cost of their organisation and indirect expenses.
• Promoting an integrated strategy: knowing the real costs and revenues is the only solid basis for adjusting a strategy and its tactical implementations.
• Training teams: hidden costs often represent the largest portion of expenses. Believing you are profitable without measuring your real financial footprint is, at best, short-sighted and, at worst, irresponsible.
• Streamline service units: they often bear costs that do not belong to them, even though they mainly produce for business units.
• Compare yourself to the market: by applying recognised rules and principles, you can measure your competitiveness reliably.
These principles may seem obvious. However, many executives – including those in financial services – reject the idea, citing the complexity of implementation and monitoring.
Yet these same executives have no shortage of arguments to explain why they consider themselves ‘better’ than others and why a comparison with the market would be unfair. A form of tacit complicity sets in, even though transparency remains the best weapon for progress.
Let us hope that SMEs that are transforming into groups will become aware of this necessary paradigm shift. But judging by some of them, this is not likely to happen anytime soon. That’s a shame.
Enjoy reading and see you soon.