Sneaky Recurring Contracts: 10 Common Ways Your Business Is Getting Overcharged You may think company costs are under control, but there are hidden expenses right under your nose.
By Dan Schneider Edited by Dan Bova
Opinions expressed by Entrepreneur contributors are their own.
Whatever the size of your small business, when it comes to the bottom line, there are only two ways to increase profits -- either sell more stuff or cut costs. You may think your organization has its costs under control, but I can guarantee you there are hidden expenses right under your nose. Indeed we've found that 98 percent of organizations miss substantial savings in the bills they pay every month.
How you say? Typically, organizations tend to zero in on production, labor and other day-to-day managerial costs when they look to find savings -- and there may in fact be substantial savings there. But the real trick is paying attention to the thousands spent on recurring, contracted monthly bills.
Here are 10 of the most common vendors that consistently overcharge their customers.
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1. Landline phone
Paying for services that aren't needed is one of the biggest landline phone plan overcharges. These charges are often hidden in your bill among pages and pages of convoluted and confusing figures. We've found extra lines that weren't being used and multiple 800-numbers for inbound calls.
One common trick is for the phone company to bill for voicemail service when most in-house phone systems already have voicemail enabled. Another challenge for small businesses is making sure that taxes and tariffs on their bills are properly applied.
2. Internet
Internet plans for businesses vary depending on upload and download speed. You'd be surprised how much more your Internet provider will charge for a faster speed, and you probably won't even notice the difference!
Another problem is finding the best rates. The rates Internet providers publish probably aren't the lowest available. It helps to know what comparable businesses in your city are paying to determine whether you're getting the lowest rate.
3. Cell phone/Wireless
So much waste can be hidden right before your eyes in one of the most confusing monthly bills any business can receive.
Additional "data charges" can actually be things like your employees signing up for a paid horoscope service. Be critical. Group plans that pool minutes (50 phones sharing 10,000 minutes) are often filled with errors and overcharges that can be tough to catch. It's also that knee-jerk reaction to purchase insurance on phones that sneakily add up. To insure 50 phones at $8 a month, you'll spend $4,800 a year. How many phones did your employees break or lose last year?
4. Waste
Thousands of dollars every month are thrown out with the garbage -- especially if you have multiple locations in different cities.
We found that nearly 82 percent of our clients waste money due to over-service (how often the trash company comes to pick up garbage). Different municipalities have different rules regarding this, and it can be tough keeping track of what's needed versus what's required from location to location. Another confusing issues is making sure fuel surcharges and environmental fees are being correctly applied.
5. Workers' compensation
Auditors for insurance companies often make mistakes when classifying employees, especially at businesses with many different kinds of workers. There's an inherent conflict between a broker's commission and your policy premiums. We estimate that auditors make mistakes 40 percent of the time in their audits and classifications -- most often in favor of the insurance company.
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6. Utilities
Electricity likely represents your company's greatest monthly cost and sales tax is a huge area where businesses consistently get overcharged. In many states, you can be charged sales tax on electricity you use to heat your building, but you cannot be charged sales tax on electricity you use to manufacture your product.
Simple rule: If you use electricity to make a product (that will eventually incur a sales tax), then you shouldn't be paying a sales tax on that service. If you run a business with multiple locations, figuring out whether or not you're paying the correct sales tax is incredibly complicated -- but it could mean tens of thousands of dollars in unnecessary spending every year.
7. Maintenance contracts
We've found that, too often, lower-level employees are entrusted with approving "small" maintenance contracts, paying maybe only a few hundred dollars a month. But this monthly cost paid for multiple locations over the course of several years could easily run into the hundreds of thousands of dollars. If you wouldn't trust this employee to make a $100,000 purchase without your approval, why would you let them approve maintenance contracts that can lock you in for even more? Careful scrutiny and, often, renegotiation can save you thousands.
8. Security
Security and alarm companies are notorious for promising one price for their service, then slowly raising the price a few months down the line -- classic bait-and-switch.
Too often, those in charge of paying the bills simply don't question when a rate increases, assuming that it must be somewhere in the contract. Another area, particularly in video security/surveillance where big waste occurs is in overpaying for redundant service. A critical examination is often needed to find redundancies.
9. Software licensing
Software licensing is a spending category that tends to have the highest fluctuation in price for the exact same product or service. Be it a reference package, background check service or invoice program, prices for identical packages can sometimes vary as much as 50 percent. Careful diligence in researching averages and rates in your area for your type of business is crucial to avoid wasting money.
10. CAM (common area maintenance) charges
Businesses that are part of a strip mall or business park often share the cost of maintenance for "common areas" -- lawn maintenance, landscaping, snow removal, etc. Your portion is generally based on your business' footprint. Too often the footprint is miscalculated, and sometimes landlords may pass more than just the cost of that maintenance to tenants. Nobody's checking to see if the landlord is padding his or her pocket a bit.
The bottom line: When it comes to saving money on product, labor and other hard costs, no one knows their operations better than you. But always beware those recurring bills and invoices!
Related: What to Do When Final Payment is Due and the Client Won't Pay
