What is recharge automation?

So, you know what intercompany charges are and it is likely you have experienced what a pain they can be to do manually. The first step to making your intercompany charges a more organised, simple process is to run them monthly, and next up: automating them.

What is recharge automation?

Recharge automation is the use of software to calculate and post intercompany recharges from rules, rather than rebuilding the calculation in a spreadsheet every period. You define once what should be recharged and to whom, the software pulls the relevant transactions from your accounting system, applies the rules, and posts the resulting invoices, bills or journals back to both sides.

The practical difference is where your time goes. Manual recharges are mostly calculation. Automated recharges are mostly review: the numbers are already worked out, and the finance team checks them and approves.

Running intercompany charges manually can be hard work

Intercompany charges are a critical part of accounting correctly where you have multiple related business entities. While the output is critical, the process for running intercompany charges has historically been cumbersome and time-consuming. It has required:

How recharge automation transforms this process

Recharge automation does for intercompany charges what cloud accounting systems have done for filing VAT/GST/sales tax returns. Evaporating the hours of manual work and replacing it with minutes to review and make any amendments to automated calculations.

What recharge automation lets you do

The process breaks down into three steps: set the rules, calculate the period, review and post.

Using a combination of factors like account code, tracking category, customer or supplier contact or transaction description to guide the rule as to which transactions it should apply to. You can then use these rules each time you’re calculating your recharges;

Transactions for a particular period can then be pulled through automatically via the application programming interface (API). The rules will automatically calculate the ensuing recharges;

You make any adjustments needed to apply a different rule to particular transactions. You then click okay and you have your recharges for the period, which can be posted back to your accounting system.

Where recharges sit in the month end close

Recharges belong after the costs being recharged are posted, and before intercompany balances are reconciled. Run them too early and late supplier invoices get missed, which means a second run. Run them after your intercompany reconciliation and you will have to reconcile again, because every recharge creates a new balance on both sides.

That ordering matters more than it sounds. Each recharge produces a receivable in one entity and a payable in the other, and those two balances only eliminate cleanly on consolidation if they agree. Posting both sides from a single calculation is what keeps them in step - which is really an accuracy argument rather than a time-saving one.

What to look for in recharge automation software

Not every recharge is a cost recharge, so the first thing worth checking is scope: can the tool handle revenue, balance sheet items and fixed cost allocations, and departmental allocations as well as intercompany ones? Beyond that, three things tend to separate tools that stick from tools that get abandoned after two months:

• Rules built from data already in the ledger - account code, tracking category, contact, description - rather than a separate mapping table you have to maintain by hand.
• A review step before anything posts, so the finance team stays in control of what lands in the accounting system.
• Support for more than one run in a period, for the invoices that always arrive late.

Recharge automation saves users time, provides greater accuracy and enables accounts and recharges to be produced monthly with minimal effort. With Mayday Recharger, our intercompany recharge software, you can do exactly that - enabling you to do in minutes what used to take hours.

If you’d like to see how Recharger could take the manual work out of your intercompany recharges, sign up for a 30 day no-card free trial today or book a demo with one of the team.