How to Cut Unnecessary Costs during COVID-19
Finding ways to cut costs and increase cash on hand are top of mind for many organizations right now. While immediate liquidity needs will be important to address, your organization may also consider re-evaluating how to reduce other forms of expense as part of its COVID-19 recovery strategy. Reviewing areas of spend, including telecommunications, accounts payable, common area maintenance and lease, software licensing, parcel shipping and unclaimed property may reveal savings opportunities and potentially even refunds for expenses paid in error.
The aftermath of a global pandemic may not seem like an ideal time to dig into detailed reviews of accounts, but the reality many organizations face is that they need immediate relief for their cash flows and financial positions. Downtimes make it essential that resources are used as judiciously as possible, and the potential for refunded payments or credits can be an added bonus.
If organizations have had to make changes to their workforce or overall company footprint — such as through the permanent closing of any of its locations — it may also be a good time to look at vendor or customer contracts to see if they can be renegotiated for your new arrangement and use needs.
How to Access Potential Cost Savings
In general, your organization can assess its unnecessary spend through a cost recovery audit. This process involves a third-party review of contracts, accounts, invoices and other related documentation to determine if your vendors are billing properly and that your organization is paying for the correct amount or use of the service. If a discrepancy is found, your organization can work with a cost recovery audit team and applicable service providers to recover any overpayments and potentially optimize vendor or customer contracts with accurate fees, usage, and billing rates.
Let’s dig into some areas for potential cost savings.
Financial waste in accounts payable generally falls into two buckets: overspend and payment areas. Reviews of your disbursements can identify if your organization made duplicate payments to vendors, did not apply credit memos, or missed rebates and other potential cost savings opportunities.
Looking for payment areas generally involves:
- Duplicate payments
- Wrong vendor payments
- Pricing errors
- Missed discounts or rebates
- Unrecorded purchase returns, and
- Unnecessary escheatment
Comprehensive reviews of telephone, Datacom, and wireless services may help optimize usage, contracts, and related expenses.
Common Area Maintenance and Lease
Reviews of your lease documents helps ensure your charges and other lease costs, such as base year calculations or pro-rata share are appropriately allocated.
Thorough reviews of your parcel shipping and freight costs can reveal the possibility of overcharges and opportunity for refunds, but it can also provide opportunities to improve the management of your shipping function. For example, as part of a cost recovery review, it is generally recommended to automate the general ledger coding of carrier charges and the cost center allocation process, which provides greater visibility into total parcel spend. You may find, for example, that certain shipments can be packaged in a more cost-efficient way.
The benefits of software licensing reviews are three-fold: one, they help ensure compliance with licensing terms; two, they can reveal whether your organization makes use of all the licenses it holds, and three, a closer look may reveal less-than-optimal terms for your arrangement. The audit of software licenses reduces your risk of contractual breach while optimizing your licensing arrangement and spend.
While unclaimed property is frequently a tax reporting functioning, a closer look at your records may uncover assets that vendors have paid you that are currently being held by federal, state, or local government agencies.
Benefits to Cost Recovery Services
As recovery from the COVID-19 pandemic gets underway, it will likely take all hands-on-deck to get your organization back to “regular” operations. Times of disruption make it especially challenging to free up internal resources to do the thorough analysis it often requires to recover money in the aforementioned areas. Leveraging external resources to assist may be a viable option, particularly because these reviews are often contingency-based — that is, the recovery service pays for itself with its cost savings.
Another useful tactic involves contract negotiation. While many organizations may handle this function internally, there are external teams that use a permissions-based approach that can enable the third party to negotiate and make contract changes on your behalf but gives your organization the final approval over contract terms. This process can expedite your contract review and negotiation process while reducing your risk by ensuring the third party can’t change terms without your organization’s knowledge.
How long an audit takes depends on the recovery process and type, but typically the bigger the audit, the longer the process. Most audits take approximately three to six weeks to complete and have funds returned. The return of funds, particularly in such a disruptive time, may provide some much-needed relief to cash flows in relatively short order.
To Learn More
For more information on the cost recovery process, you can contact our team. You can also view more resources on COVID-19’s impact on your organization through our COVID-19 Resource Center.
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