How To Turn Your Cost Centers Into Cash Centers

Our U.S. Chief Operation Officer, Steve Smith, is a member of the the Forbes Business Council where this article was originally published.

Human resources, accounting, IT and customer service are often referred to in the enterprise as cost centers because, as the term implies, they traditionally generate expenses, not revenue. And while such groups may indirectly be responsible for revenue, their primary goals are to provide their services while staying within their allotted budgets.

However, cost center operations don’t have to cost as much as traditional business practices dictate. In fact, by making a few changes, these teams can add to the bottom line rather than subtracting from it. Let’s explore several scenarios where reimagining the typical cost center structure can lead to smarter expense management and even a profit center.

Apply automation to reduce hours spent on menial, repetitive tasks.

When considering how to transition a cost center into a profit center, look for methods to reduce waste and improve efficiency. Using automation is one effective way to do this.

For example, consider the various cost centers involved in the end-to-end order-to-cash process. Receiving, verifying, processing and fulfilling orders — not to mention invoicing, receiving and processing payments — are all activities replete with manual, repetitive steps that consume your staff’s time. Automation allows you to reduce the hours spent on these tasks or activities where little human intervention or real decision-making is actually required. This can free your staff to focus on orders that need an extra set of eyes and hands.

The extra time savings also allows you to reallocate workers to revenue-saving (or even revenue-generating) activities such as customer service and collections. For example, they can address a customer’s concerns to heighten the customer experience, leading to greater customer loyalty and a higher customer lifetime value. Customer service reps can also use their additional time as an opportunity to upsell with special offers.

Automating repetitive tasks for collections teams allows collectors to develop creative ways for customers to resolve past-due invoices. The extra engagement can lead to better facilitation of payments and decrease the likelihood you’ll have to write off that bad debt. In instances like these, targeted, intelligent automation can transform service-orientated roles into genuine (and reliable) revenue streams.

Find ways to eliminate human friction points.

It’s important to reduce or eliminate friction points that limit your teams’ productivity. Utilising technology that streamlines the invoice approval and payment process can reduce your costs while also ensuring that your supply chain continues moving smoothly.

Take supplier payments. Suppliers are often willing to offer a discount on invoices paid within a specific time frame. However, companies often have trouble meeting the discount deadline due to disjointed, manual invoice payment processes. Early payment discounts aside, not making timely payments to suppliers can cause future delays in your supply chain, limiting your ability to meet customer demand and causing you to miss out on potential revenue.

In addition, using technology to reduce human friction can also reduce the risk of fraud. The technology or technology partner assumes full responsibility for the disbursement of payments and creates a complete audit trail, making transactions traceable from start to finish. The team previously responsible for cutting and mailing checks to vendors can instead use that time to audit previous vendor transactions to identify and recover overpayments.

You can also apply some simple, low-tech techniques to reduce human friction. For example, emphasising the proper use of tools like email and chat messaging and setting expectations for response time can reduce the drag that constant interruption (and irritation) has on employees. Establishing periods for “deep work,” quiet time or “open office” hours helps workers to concentrate and perform their tasks more efficiently. It requires no technology to encourage workers to identify unnecessary or redundant steps in manual processes. Finally, proactively hire employees who seek to reduce friction. For existing employees that simply rub others the wrong way, offer them training or alternate job positions, or let them go if all else fails.

Identify and eliminate unnecessary fees.

Unfortunately, inefficiencies combined with a lack of spending visibility often lead to organisations paying fees they could have avoided. These might include penalties for late payments to a vendor or paying for unneeded or unused features in a software suite. Often a vendor will hide such fees by posting the payment and fee as a single transaction rather than two separate items.

Eliminating payments for such unnecessary fees requires greater transparency and visibility within company spending. By centralising spending, you can flag invoices containing fees or penalties not included in the original purchase order for further analysis. You can then identify the reason for the charge and address the vendor, department, process or person that caused it. The money saved on fees and penalties increases profit margins and ultimately boosts the bottom line.

Another way to empower your employees to identify and eliminate unnecessary fees is by “opening the books.” Making every employee fully aware of all the expenses their departments incur is the first step in reducing those costs. Further, consider gamifying the identification of excessive or unnecessary costs and incentivising employees to suggest creative ways to eliminate them.

Get outside your bubble.

Finally, when you’ve done something a certain way for a long time, it can be hard to envision another way of doing it. Spend time networking with colleagues outside your organisation to learn how they make their cost centers run more efficiently. A fresh perspective can open your eyes to new possibilities. 

Too often, companies look to technology and automation to improve efficiency when, in reality, their core processes themselves need to be revisited. Automating an inefficient process will improve its efficiency, but often it’s better to first overhaul the process itself to meet your current needs, based on best practices shared by your industry colleagues, and then apply automation to increase efficiency even more.

Turn costs into cash.

Not every enterprise cost center can morph into a profit center, but there are actions you can take within your cost centers that result in higher overall profit for your company. Reduced time spent on manual tasks provides more time to strengthen relationships with customers and vendors. Increased visibility across company spending allows you to eliminate hidden costs that eat into your profits. And identifying and overhauling outdated, inefficient processes can lead to significant increases in productivity and effectiveness.

This article originally appeared here.

-Written by, Steve Smith

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