Internal billing may seem like a dry and extremely bureaucratic issue at first glance, but it plays a crucial role in your company's efficiency and competitiveness. In this blog post, we will look at this important process in detail and find out how ZEP can help you with your corporate management.
What does “intra-company benefit billing” mean?
In-house Benefit Accounting (ILV) is a method for billing services that are provided within a company between different departments or cost centers. The aim is to allocate the costs of these internal services transparently and according to the cause in order to be able to better manage and control the profitability and efficiency of the business areas. For example, the costs of IT services provided by the IT department for others Divisions Are provided, allocated accordingly. This is done through internal bookings without actual cash flows taking place.
This is how the calculated costs are calculated
The calculated costs in internal service billing are calculated by determining and allocating individual and overhead costs to the various cost centers and payers. Transfer prices are set on the basis of full costs, partial costs, market or negotiation oriented prices. These costs are then recorded in accounting to ensure an accurate and transparent distribution of costs within the company.
Example of in-house benefit billing: Here's how it works
An example of in-house benefit billing helps to make the process easier to understand. Let's say that a company has two departments: the IT department and the production department. The IT department is developing a software tool for the production department.
Step-by-step example:
1. Cost element analysisIT department determines costs:
10,000€ for software licenses,
5,000€ for hardware,
8,000€ for salaries,
2,000€ for rent.
2. Cost center accountingTotal IT department costs: 25,000€.3. Cost unit accountingAllocation of total costs (25,000€) to the production department.4. Transfer pricesTransfer price on a full cost basis: 25,000€.5th Accounting EntryIT department issues an internal invoice for 25,000€ to the production department.
Booking: IT department -25,000 €, production department +25,000 €.
Outcome:
The production department now bears the costs of the software tool in the amount of 25,000€, while the IT department records this as a service provided. This ensures a transparent and cause-based allocation of internal costs and helps the company to better manage efficiency and profitability.
The challenge in internal benefit billing is that cost centers receive services from others and can pass on services themselves. This requires complex mathematical procedures to correctly represent simultaneous calculations. There are alternative approximation methods due to the high effort involved:
Equation procedure
The simultaneous calculation of the billing rates of all aid cost centers using linear equations ensures an unambiguous solution, although formulating the equations is complex. This process precisely covers reciprocal service links between cost centers, such as electricity deliveries to the turbine maintenance workshop, and can be facilitated by IT solutions.
Block method
The block method neglects the consideration of service allocations from upstream cost centers and is therefore a rough procedure. It is recommended to avoid it as much as possible, as the result does not reflect actual circumstances.
Stepladder process
The Step Ladder Process Organizes Performance Dependencies in Order to Avoid Cycles and Enables Planned and Actual Performance Billing in Successive Stages, but it cannot provide an exact solution for cyclical service relationships.
Why is internal benefit billing important?
The importance of internal billing in companies cannot be overlooked. Because: This process plays a central role in managing and optimizing resources. Below, we'll take a closer look at why internal benefit billing is so important and how it helps your organization improve your performance and ensure long-term profitability.
1. Appraisal performance
One of the most important reasons why companies use internal benefit accounting is the opportunity to evaluate performance. By allocating costs at the department level, you can identify which departments or teams are working particularly efficiently and which may be inefficient. This enables you to take targeted measures to improve performance and make optimal use of existing resources.
2. Cost transparency
Internal benefit accounting creates transparency about cost structures and expenditure in various departments. This gives your management a clear overview of how resources are distributed within your company. This transparency is crucial for making better-informed decisions about budgets and resource planning to meet.
3. Pricing
If your company offers various products or services, internal benefit billing can help set prices. By Accounting for Internal Costs, you can ensure that prices are reasonable while taking profit margins into account.
4. Allocation of resources
Companies have limited resources, whether in the form of workers, machines, or finances. Internal Performance Accounting helps you ensure that these resources are used efficiently by showing which departments or projects use the most resources and which use less. This enables you to optimally distribute all available resources.
5. Cost efficiency & budget control
Do you want to keep an eye on your costs and ensure that you stay within budget? Internal benefit billing is crucial to avoid unnecessary expenses and to ensure the financial stability of your company. With these clear insights into cost structures, you can manage budgets even more effectively.
6. Motivation & incentives
Systems for internal benefit accounting can also serve as a motivation tool. Departments that save costs or work more efficiently can be rewarded, which increases motivation and leads to better performance. It creates an incentive system that encourages your employees to promote cost awareness and efficiency.
7. Compliance & Reporting
In some industries and for certain regulatory requirements, precise internal performance billing is required. This helps you comply with regulatory requirements and prepare reports for external stakeholders. The accuracy and transparency of cost allocation is crucial for compliance.
Internal benefit billing with ZEP - These are the benefits!
Are you tired of carrying out internal cost accounting manually and in confusing spreadsheets? Then you should think about using efficient software. We have something for you: ZEP! Our software makes it possible to track, bill, and control the costs of various activities, resources, and services within your organization. If your company is divided into several departments, country organizations or other structural levels, the purchase of specialized software is definitely worthwhile. Because: This allows your employees to work cross-functionally despite structural divisions — communication channels are shorter and workflows are optimized. Thanks to internal cost accounting in ZEP, it is also clearly defined which expenses are shifted or distributed within the company. And this is how it works:
Step description1. 🧭 Departments > Call EvaluationsNavigate to the “Departments” menu item in ZEP.2. 💰 Select cost allocationClick on “Cost Allocation” to activate the corresponding function.3. ⏳ Check internal hourly rateBefore calling up the report, check the internal hourly rate of the assigned project employees, the cost allocation or internal pay is used.4. 🛠️ Adjust the hourly rate if necessary, adjust the hourly rate for each set up individual projects and ensure accurate cost allocation.5. 📝 Create departments as “customers” Create the relevant departments As “customers” in ZEP to enable internal cost allocation.6. 💵 Create a fixed price invoice for the services provided based on the amounts stated in the evaluation.7. 📑 Invoice the appropriate department the corresponding department (customer) for the services provided from.8. 📊 amounts from use evaluationThe amounts specified in the evaluation serve as the basis for internal cost allocation.
Conclusion
As you can see, internal benefit accounting may seem complex, but it is of fundamental importance for managing and optimizing corporate resources. It enables better performance reviews, creates cost transparency and can make a decisive contribution to employee motivation. With suitable software such as ZEP, you not only increase your competitiveness, but also ensure your profitability. Using ZEP makes this process much easier and provides clear insights into your company's cost structures.
Therefore: See internal benefit accounting not just as a bureaucratic evil, but as a strategic tool for improving company performance. Use predictive planning and decision-making at management level to make your company more successful. Was that too complex for you? No problem! If you have any questions about internal cost accounting with ZEP, please contact our Support team — by email or directly on the phone.
