When expenses are climbing faster than revenue, businesses typically look to small cost-saving changes, such as minimizing travel expenses or conserving office supplies. In more extreme cases, the business might consider a major restructuring of the company in hopes of a significant potential long-term savings impact.
A closer look at the books, however, can reveal several methods to reduce costs that are meaningful, but not potentially risky to the company’s viability. These measures may include streamlining processes, consolidating vendors or accelerating cash flow to pay off some of those expenses. What’s more, improving efficiency has long-lasting benefits beyond reducing costs because it can also help the company run more productively and deliver better service to customers.
1. Paperless payment and collections
A simple and impactful way to quickly reduce costs is to eliminate checks from your accounts payable and receivable workflow as much as possible. Paying creditors and vendors with a credit/purchasing card or through Automated Clearing House (ACH) payments can present several expense-reducing benefits. For example, paying via credit card offers businesses as much as 55 days before funds need to be deducted from their account, which helps to improve cash flow. And by utilizing ACH payment methods, businesses can reduce or eliminate the time and cost associated with writing checks. These payments can be scheduled for automatic payments to save even more time and internal resources.
On the receivables side, emailing invoices and accepting credit card or ACH payments can eliminate the paper and postage costs of mailing bills. Electronic billing also saves Collections time and effort, reducing labor expenses and accelerating cash flow. While accepting credit cards may carry a fee, they offer the security of guaranteed funds, unlike checks.
2. Vendor consolidation
One of a company’s top expenses can often be its supply and service vendors. Performing analysis on vendor spending, such as identifying vendors who may be charging more than competitors, could present significant savings opportunities. Moving your company’s business to a single supplier or service vendor could also present discounts on bundled or additive services, offering even greater purchasing efficiencies.
These situations are especially common if the company has many vendors, facilities in different locations, or different employees managing vendor contracts without standard vendor management and procurement policies in place. Consolidating supply and service vendors and standardizing contracting processes can help companies eliminate redundancy and overcharging.
3. Ask your banker
Your banker is a key resource in helping businesses manage their cash flow and streamline the payments process. They can offer guidance on controlling expenses and methods for freeing up more cash to grow your company, helping to offset some of the rising costs that come with any growing business.
Your banker can also share industry trends and relevant best practices learned from other clients that helped them streamline operations and minimize future financial challenges.
Although business expenses can be reduced in a number of ways, eliminating inefficient processes and wasteful spending should be the top priority. Without improving existing operations, the savings experienced from a superficial cost reduction, or even a major restructuring of the company, may be short-lived.
A better choice is to equip your workforce with the tools and information they need to help control expenses and pursue revenue-generating activities to grow the company.