Service center definition
/What is a Service Center?
A service center is a department that provides services to other departments within a business. The costs of these departments may be charged to the using departments under the terms of an annual service agreement, so that all managers concerned can budget for the charges that will be billed. If the cost of a service center appears excessive to a using department, the manager of the using department may have the option of acquiring the service from a third party.
Example of a Service Center
A larger business may contain a number of service centers, of which the following are the most common:
Human resources service center. Manages employee onboarding, payroll, benefits administration, and workplace policies.
IT support desk. Provides technical support for employees, including hardware, software, and network troubleshooting.
Accounting service center. Handles budgeting, financial reporting, accounts payable/receivable, payroll, and tax filings.
Procurement. Oversees purchasing, vendor management, and logistics coordination.
Customer service center. Manages inquiries, complaints, and support requests from customers.
Legal service center. Ensures that the company complies with legal regulations and industry standards.
Marketing service center. Handles branding, advertising, digital marketing, and internal communications.
Research and development service center. Conducts product innovation, testing, and process improvements.
Facilities and maintenance service center. Manages office spaces, utilities, safety, and security operations, and oversees building maintenance, repairs, and operational efficiency.
Employee training service center. Provides ongoing professional development, leadership training, and certifications.
Each of these service centers helps streamline operations by allowing different business units to focus on core activities while receiving specialized support.
Accounting for a Service Center
There are several ways to account for a service center. Here are the options:
Specific billings. A service center could have an internal fee schedule, which it uses to charge other departments for the services provided. This means that the service center is operated as a profit center.
Cost center. A service center could be operated as a cost center, where its manager is held accountable for keeping costs as low as possible. There are no billings to other departments.
Allocated costs. The costs incurred by a service center are allocated to all using departments at the end of each reporting period, using either a standard or actual overhead rate.