Pass Through Costs Are Not a Place to Add a Margin

Pass Through Costs

Free Consultation

A UAE parent signs a lease for a country office. The subsidiary in that country will use the space. The parent pays the landlord, invoices the subsidiary, and out of habit adds five percent on top. The five percent is meant to say we added value. In truth, all the parent did was arrange the payment. It signed. It paid. It sent an invoice.

Recovering a bill is not the same as billing for work.

Pass Through Costs

A cleaner way to think about pass through costs

There is a cleaner way to think about this. Bill for the effort you actually added. Recover, do not price, what you only paid on behalf of somebody else. If arranging the payment involved real work, negotiating the lease, managing the landlord, sitting through renewals, put a small fee on the arranging. Not on the rent itself.

Effort vs Pass Through

Effort

Real work the parent actually added, such as negotiating the lease, managing the landlord and sitting through renewals. Put a small fee on the arranging.

Pass Through

What the parent only paid on behalf of somebody else, such as the rent itself. Recover it at cost, with no markup.

Pass Through Costs

Two habits behind the default markup

Two habits sit behind the default markup. The first is a group treasury view that every intercompany invoice must earn a spread. The second is inertia. The template already has a five percent line and nobody wants to change it. Both are worth challenging when the intercompany ledger is reviewed at year end.

What was only handed across should be handed across unchanged.

The practical drill for the CFO

For the CFO, the practical drill is short.

The Intercompany Invoice Drill

01. Tag Every Invoice

Tag every intercompany invoice as effort or pass through.

02. Price the Effort Line

Where real work was added, price it. A markup on a real service is fine and expected.

03. Recover the Pass Through at Cost

The pass through line is recovered at cost, with no spread on top.

04. Keep the Two on Separate Rows

So the story reads clearly to any reviewer opening the file for the first time.

Effort or echoes

A markup on a real service is fine and expected. A markup on a pass through is a habit dressed as a rule. Look at your intercompany charges this week. How many are effort, and how many are echoes.

Insights & Success Stories

Related Industry Trends & Real Results