Inflation has been a hot topic in 2022 as the Consumer Price Index continues to rise, soaring to levels not seen since the 1980s. Inflation hit 8.6% in May, up a full 1% from April. Regardless of industry, businesses are feeling the impact–and paying the price.
Increased energy costs are driving up utility bills as well as the cost of goods. Skyrocketing fuel prices on top of carrier rate increases are driving up shipping costs at a time when many businesses are still struggling with supply chain interruptions. The cost of doing business is going up. As consumers tighten their own spending habits to combat rising inflation, decreased revenues will ripple across verticals.
In uncertain times, the best course of action is to focus on what is within your control. Revenues may not be going up, so it’s time to get expenses under control. Here are four cost reduction tips to help your business fight inflation.
If you have to implement or renew service contracts this year, pay close attention to price escalators. A price escalator is a percentage or fixed dollar amount representing how much the vendor can raise the rate. An unfavorable increase term will quickly undo the benefits of a great initial base rate.
Language around price escalators is often vague, so your agreement must state explicitly how much a vendor can raise rates and when. Setting a fixed maximum percentage of annual price increase ensures there are no surprises. In situations where rate increases are tied to a consumer price index (CPI) or fuel surcharges,
make sure the rates are based on a neutral, published third-party index. This enables your company to verify that the vendor doesn’t raise rates arbitrarily. Also consider adding a cap, such as the greater of CPI or 5%, to protect your company against unexpectedly high inflation.
Even if your business is locked into multi-year vendor contracts, be sure to familiarize yourself with those price escalators. Know if and when to expect a rate increase, and once that bill goes up, check the increase on your invoices against the increase set in the contract to ensure compliance.
Securing favorable rates and capping price escalators may lower costs, but they will not prevent higher bills due to overservicing. You might be surprised by how often SIB analysts achieve significant savings for a client simply by adjusting service levels.
Waste removal is a common area for overservicing. No one thinks to question the trash pick-up because it’s an essential service, but companies often find themselves paying for too frequent pick-ups or outsized containers. By adjusting to fewer pick-ups or switching to a smaller dumpster to fit actual usage needs, companies can realize a sizable drop in their monthly waste invoice.
Any vendor contract can and should be optimized to your business’ actual level of service. Perform a quick internal audit to make sure you aren’t paying for unused devices or licenses such as phone lines, mobile devices, printer/copiers or SaaS licenses. If you find a disparity, reach out to the vendor to adjust your contract. You may also be able to recover the overbilled amount from previous invoices.
For any volume-based services (such as waste removal, document storage, laundry service, etc.), assess the actual volume your company is generating and compare it against the service level identified in your contract. If the actual volume is above or below what’s contracted and you are incurring extra fees as a result, reach out to the vendor to make an adjustment.
Good contract terms and optimized service levels are meaningless without compliance. For multi-location businesses, keeping track of services across all sites is a challenge. However, it is essential if you expect to keep savings in place while protecting against basic human error. Safeguard your business from billing errors and improper rate increases by reaching out immediately to address discrepancies.
The larger your company, the greater the challenge becomes, particularly when operations span multiple states or regions. Even if each location requires the same services, they’re likely contracted with different vendors and operate at different volumes. When monthly invoices don’t vary wildly from one location to the next, it’s easy for your accounts payable team to miss small billing errors. Over time, those errors can add up and hurt your bottom line.
To protect your business, designate a single point of contact (an individual or a team) who is responsible for organizing vendor contracts, tracking rates and increases, and reviewing each invoice for accuracy and compliance. Make sure your contact understands service-level needs across all locations, so they can identify instances of overservicing. Identify and address erroneous charges with the vendor as soon as possible.
Correcting billing errors is just one way to recover funds owed to your company. For companies looking to boost their bottom line against inflation, there’s never been a better time to consider one-time payouts from unclaimed property and class action lawsuits.
Unclaimed property refers to different types of payments or credits that never find their way back to the original owner. Examples include uncashed payroll checks, telephone or utility security deposits, and even vendor overpayments and refunds. Depending on the state, unclaimed property has a dormancy period between one and five years. Once this period has passed, the holder is required to notify the owner (your company), leaving a limited window to claim the property before it is claimed by the state. The method of contact and threshold for notification varies by state, so there’s no guarantee your company will be notified in every instance. Each state has a website that lists unclaimed property; you can research what’s owed to your business and make a plan for recovery once the dormancy period ends.
Class action settlements are another source for one-time payouts. They allow your business to receive compensation for unfair vendor practices that previously incurred additional costs. Such claims are less straightforward than unclaimed property recovery, because they take longer to process and the payout comes from a pool divided among all claimants. Before filing, take the time to collect the necessary documentation such as purchase records and site lists.
Perhaps you don’t have the resources to keep track of invoices and look for other money-saving options. Why not leave it to the experts? SIB works with you to save money, fight inflation and weather financial crises. Our expert analysts know your vendors and their practices, and they’ll do all the work without disrupting your operations. They leverage our database of benchmark pricing from 100,000+ locations nationwide to secure best-in-class rates and contract terms for our clients. Contact us if you are interested in securing and protecting savings that drop straight to your company’s bottom line.