Whilst you're busy running the day-to-day operations, sneaky subscriptions and unnecessary costs can easily bloat your company budget. However, as we've learned from our customers, awareness of alternative options is key to avoiding these common pitfalls.
Beware of little expenses. A small leak will sink a great ship.
– Benjamin Franklin
If you’re a small business owner, you know the above to be true.
According to the ABFA, the UK’s smallest businesses (with a turnover of less than £1million) are waiting up to an average of 72 days to get paid for their invoices.
At Investly, we work with SMEs across a variety of sectors. We've taken away 3 key points from their experiences in avoiding hidden costs that can help you take control of your finances:
1. Overpriced website hosting, internet & subscription services
As an online business, you pay for web hosting, internet and additional subscriptions. These help run your business efficiently.
As these services seem like must-haves, they are rarely negotiated with the providers. However, we’ve noticed that many of them are willing to haggle if you know what to say.
Another pitfall is company subscriptions which aren’t essential to the success of the business. The tools you need for your small business to create a product or run a service should be known to you, so create a budget and include your internet, web hosting and all your subscriptions.
Here are our tips:
- Negotiate with your current providers! If you are unsure where to start, here's an amazing blog post on how Kapitalust saved 50% on a yearly contract on their hosting
- Conduct an expenditure analysis and put together a balanced company budget with the help of this friendly guide from Freshbooks (Step 4 is crucial!)
- Review subscriptions: opt for annual plans where necessary, but cut down on number of users if possible
- If you'd rather not take on price discussions yourself, third-party services such as ProcureDesk help review expenditures and can negotiate pricing on your behalf.
2. Costly transaction and merchant fees
Selling your product or service online means customers who expect to pay by credit or debit card. As a result, you can end up paying 3% charges in credit card fees for every transaction. It may not seem like much to begin with, but at high volumes these hidden costs stack up!
Not accepting cards can seem like a surefire way to add friction to your customer journey. Thankfully, there are ways to avoid this whilst still taking control of your payments:
- Business News Daily has insights on how to save on credit card processing fees. This include the nitty-gritty of negotiating with your service provider by leveraging your transaction volume.
- Avoid making these 4 serious mistakes with your credit card processor. Getting to grips with your interchange table can make a world of difference!
3. Overdue payments
The #1 small business killer! Did you know that UK SMEs are collectively owed £67bn in unpaid invoices?
It can be incredibly frustrating when you've signed, sealed and delivered; yet you're stuck waiting for 30 or 60, even up to 120(!) days for your payment.
These delays seriously hurt your cash flow.
Basic expenses - such as payroll, insurance, rent and utilities - will be difficult to cover. Bounced checks can chip away at your credit rating. This is can lead to a deadly circle, where you end up not being able to pay your suppliers as a result of waiting on your customers.
Don't get stuck:
- Set clear terms and hold customers accountable: Net 30 is often the default payment term, but you don’t have to wait a month if you can’t allow for it. Set your terms as PIA (payment in advance), Net 7 or 10 (payment due 7/10 days after invoice date)
- If a customer fails to pay according to your terms, you are within your rights to claim compensation and interest
- Consider invoice discounting: the volume of financing secured through invoice discounting broke the £20bn barrier in 2016 for a reason. Businesses get paid faster with no need to negotiate shorter terms. Though Matt and Ben's Proper Fudge Company were dealing with large orders from major retailers like M&S, they got their invoices funded within 2 days
Now that you've learned to avoid common £££ drains, we're eager to share further stories of small business growth with you!