It’s no secret that a primary goal for businesses, whether it’s a Fortune 500 company or a small- to mid-size startup, is to make money. But if you fall on the latter end of that spectrum, every dollar needs to count. You can’t afford to throw away money on unnecessary resources if you want to stay afloat and also be profitable in the long haul.
Those leading the charge—company founders, CEOs, CFOs and the like—have a lot on their plates and don’t necessarily have the time to think about the small details, like how much a recurring software subscription costs. Instead, they need to prioritize high-level financial issues within the company, like high cash burn rates.
Why the small money details matter
But those little things can add up and become major issues, so it’s important to stay on top of hidden costs. For instance, duplicate invoice payments can cost small and mid-size businesses thousands of dollars, funds that could be better spent on any number of investments that could benefit your company instead of essentially getting thrown down the drain.
Figuring out where your company is spending money where it shouldn’t be and taking actionable steps to resolve those issues can help your business thrive and increase its lifespan.
How your company could be losing cash
Here are 5 ways companies bleed cash on hidden expenditures and tips on how to avoid falling into the same trap with your business:
1. Duplicate invoice payments
You never want to pay for the same exact item more than once, but sometimes, with a high number of invoices coming in and out, you might accidentally receive a duplicate invoice. The key is making sure to flag it rather than paying twice.
According to the Open Standards Benchmarking Accounts Payable survey from the American Productivity & Quality Center (APQC), on average even top-performing companies report that nearly 1% of their annual disbursements are either duplicates or erroneous. Meanwhile, the bottom performers reported 2% of their total annual disbursements fall under duplications or errors.
On average, accounts payable clerks process about 1,000 invoices per month. So if 1% of these are duplicate or errant payments, that’s 10 invoices your company is paying for that it shouldn’t be.
2. Recurring subscriptions
Whether you’re leading a company or trying to keep tabs on your personal spending, recurring subscriptions can be a drag on your budget.
In the same way that you don’t want to keep paying for Hulu if you’re only watching Apple TV Plus and HBO Max (i.e., Ted Lasso and Succession), you also don’t want to continue paying for software subscriptions or other recurring business expenses that you’re not actually making use of.
The average American spends nearly $240/month on subscription services, or roughly $2,900/year. If even a few of these services aren’t being used, you could be throwing away thousands of dollars, and that’s just at the individual level. At the corporate level, recurring subscription costs could easily get out of hand. Overall SaaS spend was up 50% in 2020 compared with 2018. But duplicate SaaS app subscriptions jumped by 80% year over year from 2018 to 2019, and the average company has nearly 4 duplicate apps.
There are certainly benefits of recurring subscriptions: predictable spending, cash flow, flexibility and more. Just make sure to check in on how much you’re spending on a regular basis, annualize your spending, and compare the cost of paying for an annual vs. monthly subscription as a potential means of saving. And most importantly, cancel any services you’re no longer using.
3. Lack of control
If your company is disorganized in expense management, it’s easy for things like unnecessary recurring subscriptions to slip through the cracks. This lack of organization can create an approval bottleneck when it’s unclear who’s in charge of expense control.
Controlling and approving employee spending before transactions occur can minimize errors and make sure you’re staying on budget. If you haven’t implemented real-time expense management, you’re likely already behind. But working tools for finance teams into your business plan can help those departments save time and focus on more important issues than creating and updating reports manually.
4. Lack of automation
On top of being a waste of time for finance departments, manual expense reports and other manual processes are subject to human error. Incorporating automated expense reports with tools like receipt matching can not only save time and frustration but also money.
Manual-based processes can affect several different departments in terms of labor and costs. An expense report, for example, doesn’t just waste time for the employee to create and file. It then takes time for the employee’s supervisor to review and approve the report before the finance team handles processing the report and eventually handling the reimbursement and reconciling the payment.
5. No clear insights on spending patterns
If you don’t have transparency on your spending patterns, it’s impossible to get the full picture of your company’s financial situation.
Inefficient or irregular spending can cost you money and prevent you from hitting quarterly and/or annual targets. Taking a deep dive on spend analysis can help you identify trends and patterns that you might otherwise miss out on, and real-time reporting can help business owners dig deeper into spending to see what among those patterns works and what doesn’t.
Looking at past spending can help you identify areas where you can make more informed purchasing decisions, improve processes, and save in the future, which is why it’s important to track business expenses as early as possible.
A smart way to save time and money: Ramp
Ramp is the only finance automation platform designed to save you time and money, and Ramp’s card is the only one that actively decreases your burn rate.
Ramp allows you to set spend policies and implement built-in controls to limit employee spending, both of which can help you avoid common pitfalls like overspending on recurring subscriptions and duplicate invoices.
Many credit card companies promote points and other perks designed to increase your spending—the exact opposite of what businesses are trying to accomplish. Conversely, Ramp allows companies to focus on reducing wasted spend by using resources effectively. Through a focus on organization and automation, Ramp can help increase not only your business’s bottom line, but its longevity as well.
According to a West Monroe study of 2,500 Americans’ budgets of 21 subscription services categories