In my experience, most Finance Directors trust their purchasing staff to be doing a thorough and diligent job when it comes to ensuring that they get best value when purchasing overhead products and services. Why wouldn’t they?
But in 30 years working as a cost reduction and purchasing consultant with a 99% savings success rate, I can safely say that most office, admin, finance and IT managers are all way too busy to drill down into the detail of monthly billing reports to look at costs, trends, usage patterns and wastage – that’s assuming, of course, that they even get monthly billing reports from their suppliers in the first place!
Many business admin and purchasing staff are not focussed on identifying and reducing overspend. If the invoice looks the same as the previous month, they just pay it. So here are five examples of the detail I go into when I visit a client to review overhead costs.
1. Deep dive into supplier invoices.
At the risk of stating the bleedin’ obvious, it is vital to understand what you buy, why you buy and how you buy the products and services important to the running of your business. Without this information it is impossible to get control over all aspects of any overhead spend. The opportunities for overspending with suppliers are multiple when organisational circumstances are continuously changing and there is always something more important to do than wade, line by line, through supplier invoices. It takes time and commitment to stop and really look at what is included in billing management reports going back six months, and purchasing staff just don’t get round to it.
So here are some examples of cash leaks I identified that went unnoticed by my clients:
• £3,420pa overspend missed because a client’s in-house IT department still had an 0845 premium rate help line number for their remote workers to use instead of a 0345 local rate number.
• £11,500pa being charged for a leased line with BT that had been ceased over two years previously.
• £13,530pa for switchboard maintenance even though the switchboard had been removed and replaced with a new cloud-based phone system.
• A reception booking timed 10.30am couriers rather than next day for no apparent reason.
• Incorrect VAT charges on a charity client’s utility bills
• Unused water coolers being stored in a client’s basement after an office move.
2. Reduce maverick spend.
Maverick or rogue spend is caused by unmanaged buying. All companies suffer from it.
It is often hidden in low-visibility, tail end transactions of general overhead services and products, and it is usually difficult and time-consuming to identify.
The causes are multiple but some of the common reasons are:
• Buying an unapproved product or service from an unapproved supplier.
• Buying from an approved supplier but buying a variant product not on the negotiated core list.
• Buying the right product but from an unapproved supplier
Your supplier list is easily viewed on your accounts platform but who has the time (or inclination, frankly) to go through that list and the resulting multiple invoices nowadays? The loss of sourcing leverage and the cost of processing additional billing can have a marked negative impact on profits. I carry out this check as a matter of course for my clients; it saves them a significant amount of time.
3. Check your SaaS costs.
According to research published in CFO, a staggering 90% of SaaS buyers are overpaying so it is likely that your IT department is too. Significant funds can be spent on software and with provider prices increasing over the past two years, businesses and charities are often paying more than they need to.
Often vendor price transparency can be the main obstacle to finding best value so digging deeper to make a full inventory of all the software you’re paying for and evaluate what business benefit you’re getting from them is vital.
Getting SaaS spend under control will have an immediate impact in reducing your IT budget, so it’s vital to opening a dialogue with your suppliers to identify ineffective, overlapping or under-utilised legacy software products.
4. Check your cost centre tariffs.
Have your purchasing staff checked for possible tariff variations between cost centres or departments? It is quite a common occurrence when suppliers take over competitors that the legacy tariffs are retained. I recently audited a charity’s overnight courier costs and their service provider (a large same day and overnight courier company) had the client on four different legacy tariffs with a 16% difference in next day charges.
Another example was a publishing company using a well known minicab service in London with four legacy tariffs and a whopping 46% spread on their most popular minicab journey price.
The larger the service provider you are using, the more chances there are of this happening. Overnight and motorbike couriers, minicabs and document storage are where this can often occur.
5. Review company credit card purchasing.
If you think going through non-approved maverick spending is time consuming, consider the hidden expenditure on your company credit cards. The amount of overspend and tail spend from online supplier purchasing can be significant and is usually invisible and/or forgotten about. Busy purchasing staff can easily glance over these opportunities.
A complete and thorough, deep-dive analytical review of your historic statements is usually what is required to resolve this profit leak. The savings may not always be significant but if you add it onto all the other insignificant savings, it suddenly becomes worthwhile.
You’ll most likely be losing out on the purchase VAT as well.
My role at Watermill Lane Associates is to forensically investigate your billing, identify savings and overcharges and then negotiate with your incumbent suppliers. I do this remotely so I don’t disturb your staff. There are no up-front fees and you pay me a minor percentage after the savings have been achieved, which makes me self-funding.
Please do not hesitate to get in touch for a further conversation about how I help my clients. I have a no savings, no charge guarantee.
Profit from my experience.