What it means
A VoIP system converts the sound of a voice into small packets of digital data, sends them across the internet and rebuilds them at the other end. Calls can be made on a desk phone, a computer or a mobile app.
Because the call travels as data, the cost of distance mostly disappears. For finance teams, the main appeal is cost.
Traditional phone systems involve equipment on the premises, line rental and high charges for international calls. A VoIP service is typically billed per user per month, and many calls between users or within a region are included in the price.
There are other advantages. Staff can use the same business number from home or while travelling, new users can be added in minutes, and features such as voicemail to email, automatic menus and call recording come as standard.
Reporting tools show call volumes, response times and missed calls, which helps managers plan staffing and spot problems early. The costs and risks need to be weighed up.
Call quality depends on the strength of the internet connection, so a business may need to upgrade its bandwidth, and a power or internet outage can stop calls unless there is a backup. Emergency calls need the correct location information to be registered, and some industries have rules about recording and storing calls.
On the accounts, subscriptions are an operating expense, while the one-off cost of handsets and set-up may be capitalised if significant. Moving from owned equipment to a monthly service shifts spending from capital to operating costs, which changes how the cost appears in the financial statements.
A careful comparison should include the full costs on both sides. These include handsets, installation, internet upgrades and staff time, as well as the monthly fees.
In practice
Real-world examples.
Example
A recruitment agency with three offices moves to VoIP and gives every consultant the same company number on a mobile app. The agency avoids the cost of a separate phone line in each office and cuts its international call bill by about two-thirds.
Example
An online retailer uses VoIP call routing to send customer calls to the nearest available team member. The customer service manager reviews reports on missed calls and adds staff to the busiest hours. Customers wait less, and fewer of them hang up before they are answered.
Example
A law firm compares VoIP with its existing system and finds that the recording and storage features help it meet regulatory requirements. It chooses a provider that stores recordings securely in the country where its clients are based.
Formula
Calculation
Annual saving = number of users x (old monthly cost per user - new monthly cost per user) x 12
A company with 50 staff pays $45 per user each month for its traditional phone system, including line rental and call charges. A VoIP service costs $20 per user per month. Monthly saving = 50 x (45 - 20) = 50 x 25 = $1,250. Annual saving = 1,250 x 12 = $15,000. If the company spends $6,000 on handsets and an internet upgrade, the one-off cost is recovered in 6,000 / 1,250 = 4.8 months.Case study
Seen in the real world.
Greenfield Property Group is an illustrative, fictional company with 120 staff in five offices, each running its own phone system. The total cost of line rentals, maintenance and calls was $86,400 a year, or $60 per user per month.
The finance director obtained quotes for a single VoIP system and found a monthly cost of $35 per user plus a one-off set-up and equipment cost of $18,000. The annual running cost would be 120 x 35 x 12 = $50,400.
In this illustrative case, the saving in the first year was 86,400 - 50,400 - 18,000 = $18,000, and $36,000 a year afterwards. She also required a backup internet line at each office, costing $12,000 a year, which trimmed the later saving to $24,000 but protected the business against outages.
Watch out
Common mistakes.
- Comparing only the monthly fee and forgetting the cost of handsets, internet upgrades and staff time.
- Ignoring internet reliability, when an outage can stop all calls unless a backup is in place.
- Overlooking legal requirements for recording calls, storing data and handling emergency calls.
Questions
People also ask.
Is VoIP the same as using a video calling app?
Not exactly, since VoIP refers to carrying voice calls over the internet and often connects to normal phone numbers, whereas video apps may only connect users of the same service.
How is VoIP cost recorded in the accounts?
Monthly service fees are an operating expense, while significant equipment purchases may be capitalised and depreciated.
Can I keep my existing phone numbers?
Usually yes, because most providers can transfer existing numbers, though the process takes time and should be planned.
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