First Cut Is the Deepest
How creative is your accounts payable department in reducing wasteful spending?
May 7, 2009
I am often impressed by the various approaches clients are taking to cut costs. A recent visit to a client’s office included an introduction to their WOW program — War on Waste. Another client in the automotive field calls their program — Keep the Engines Running, while a third client has their Phoenix Program Rising From the Ashes program. As part of their programs, it is incumbent on all the employees to find ways to cut costs, reduce spending and save both their and their co-workers’ jobs. Accounts Payable (A/P) personnel are scrutinizing vendors’ invoices a lot closer, not only for errors in billing, discounts not offered, erroneous sales tax charges (all the things we constantly preach), but also to see if they really need what they are buying. Or, even better, can they negotiate a better price for their company on their own?
Tips for Curbing Wasteful Spending
At one client’s office, an A/P staffer questioned an amount that their telecommunications provider was charging. It was a rather high monthly amount, and the company had been paying the same amount for years. The question to the provider was pretty basic — can we substitute a different service that is more cost efficient? It turned out that the service the company was currently using had indeed started out as a very high monthly charge, but thanks to new technology and competition, the provider had significantly reduced (90%!!) the monthly charge to any customer that requested it. Sometimes a simple phone call can result in significant savings.
Another client issued a memo to all its employees as to cost-savings ideas that they had not only come up with at corporate, but through a company-wide suggestion plan.
Where Not to Cut
I have several acquaintances who are in the advertising business and have seen their revenues fall dramatically. When money is tight, people start slashing what they perceive to be nonessential costs, and usually the first to go is their advertising budget. Of course, my friend’s arguments are that now is when it is most important to advertise and remind your clients of your products.
On a more personal note, my daughter works for an ad agency in the Midwest. She is a Media Planner. It is her job to take a client’s budget and stretch it as far as possible. She and her team take the client’s budgeted amount and see to it that they get the most bang for their buck, which in turn means negotiating with TV and Radio stations, newspapers, journals, billboard companies, etc. Her major client, while cutting back on its advertising spend, did not slash it. Rather they made the budget more workable and, through their ad agency, negotiated almost the same amount of exposure as they had with a bigger budget. The results? Their sales for 2008 and first quarter 2009 were flat. Flat? In other words their sales did not increase, but they DID NOT decrease either. In today’s economy, how many companies would give anything to not see their revenue go down, but just stay steady?
Now everyone is wondering what in the world does advertising have to do with consulting and contracting fees? The fact is that the ad agency had the contacts, knew what could be negotiated and had better ideas on to how to use the budget. In other words, the client needed the help of a consultant. Have they tried it on their own, the client would probably not have been as cost effective, had a boat-load of stressful staffers and probably not had the same results.
Be Good to Your Employees
People often assume that those employees who did not lose their jobs will be so happy to still have a job that they will pick up the slack for the empty desks. In a prior article, I quoted an article from the Dallas Morning News, that cited a survey conducted by Leadership IQ of 4,172 workers still employed at 318 companies after downsizing in the last six months. They indicated that more than three out of four (77%) “see more errors and mistakes being made.”
What wasn’t mentioned in the survey is what CPA firms are now seeing, a certain resentment on the part of employees. Employees are expected to do more in less time and with less help with fewer rewards. For example, at a recent engagement my company came across a substantial deposit to a country club. The deposit had been sitting on the country club’s books for over 20 months. The deposit was supposed to have been for the company’s Christmas party but because of the economy and the layoffs the company canceled all party plans. When we inquired as to why the deposit was never asked for, we were told that the deposit was supposed to have been for the employees and since it was not spent on the employees no one volunteered to get it back from the country club. “They all had enough work to do as is.”
At a recent conference that I met a person who works in advisory services at one of the national accounting firms. Her comment was that many companies pass up on long-term gain by focusing on short-term effort, sacrifice and cost.
There is definitely a point when the cuts become too deep!
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Allen M. Liebnick, CPA, is president of Overpaid Payables Recovery, Inc. A former associate professor, Liebnick has been providing accounts payable, sales tax and telecommunications post audit recovery services for over 15 years. He serves clients in the U.S., Canada and Mexico. He is a member of the New York State Society of CPAs as well as Texas Society of Certified Public Accountants.