One of the best ways consultants quickly gain traction in an organization is by auditing vendor payments. Start with several months or a year’s worth of data.
First, do the math.
Making an official looking invoice is easy. Hard-keying numbers into those invoices leaves them open for errors. Check the extensions (X products at $Y each equals $Z) and check the totals column. Confirm any tax that is charged and check that calculation too.
Once you find the arithmetic errors, check the agreements.
This part is more fun than you think. Segment your invoices by number of line items and then again by amount. Go for the low-hanging fruit by tackling the single line items first. Pull the agreement and make sure that the proper rates were charged. If no agreement exists, quickly use a search engine to check for market rates. Many vendor relationships are based on older market rates that may no longer be valid. If the rate seems in line with market pricing and there are no errors on this invoice, approve the vendor, but check their other invoices.
A word about market rates.
Market rates change over time. Sometimes customers are grandfathered into price plans that no longer exist. Other times, both parties know that the rate changed no longer matches the market — it may even be higher — but there are other value adds that the vendor supplies free. This is an opportunity to codify that pricing and those agreements. You’ll end up with a lower rate or an agreement that the vendor will supply the value add for a period of time.
I’m convinced most companies want to set a rate and sell their goods and services at those rates. I also believe that all small businesses want to fix mistakes and not let things fester, or worse, build up over a period of many months.
The Doctor’s Story
Credentialed professionals such as doctors and attorneys often retain a business manager simply to keep up with the arcane rules and pricing surrounding their services. I had extended discussions with one physician’s manager in a role like this who told me that a number of patients had been billed for an amount over their copay. “It’s the beginning of year reset,” she explained. “People have to meet their deductibles” This is a smart person who knows her industry and practice. But what she missed was that these patients had all been treated by one physician and different insurance levels had all been billed. She seemed reluctant at first to dig, but imagine her surprise when she learned that the lead physician who controlled the practice was not listed as accepting the company’s insurance. Those were out-of-network charges, not new year deductibles. You can do the same in your small business. Set aside a block of time each month and go through all of your invoices for a category or vendor type. You may be spending money unnecessarily because someone’s spreadsheet that is sent to the accountant has a formula error.