How do I prevent vendors from overcharging me?
We’ve all had that nightmare: after a successful week implementing our spend strategy with numerous partners and vendors, we open our accounts to find we’ve been overcharged by a factor of 10 or more, wiping out our entire revenue projection for the year. Alert! Alert!
While these kinds of catastrophic pricing calamities are rare, it’s important to mitigate the chances where discrepancies can slip by, whether by simple human error or more malicious vendor activity.
How Do You Establish Good Business Practices?
Put it in Writing
The best way to reduce misunderstandings with a vendor: over-communicate your needs and keep a paper trail.
Business is business, and everyone wants to get paid for services rendered. But you’ll get far more out of your relationship with your vendor if both sides are comfortable and fully aligned on what’s offered, and what’s expected.
Send specific, organized work orders, and wait for confirmation of said-order before moving forward. Engage in cooperative over-communcation, where both parties are comfortable being fully open about both their goals and their needs. Make sure you know: what’s included in the service, how service or deliverables are being measured, what the deadlines or relevant dates are, and how payment is being arranged.
Email is suitable for project details, but it’s essential to receive acknowledgment of receipt. Only then should any work commence.
Ask for Work Units Rather Than Price
New research has shown that vendors are less likely to overcharge if work orders are framed around ‘units of work’, rather than an overall price. By asking for hours needed, specific tasks performed, items produced, etc., you set the stage for accountability in production, and reduce the opportunity for misappropriation of time or resources.
In this study, it was discovered that people were 25% to 59% less likely to overcharge if work orders included the volume of work completed or projected before requesting quotes, vs. the opposite approach. Unit-reporting makes vendors feel accountable for their actions, which in turn, leads to accountability in billing behavior.
Make sure your vendor knows you mean business.
Don’t Ignore the Problem
Even with a robust shared strategy and work order in place, we’re only human—miscommunication occurs, and deadlines are missed. It’s vital that issues in the order-flow are ironed-out as soon as possible. If the vendor doesn’t know you’re dissatisfied, they will continue doing what they're doing, and complications will compound.
While your financial operating system may have set-it-and-forget-it solutions for common needs, this doesn’t work when dealing with real-live people. Stay alert to early complications in the workflow, and make sure your vendors and partners are on the golden path to giving you what you’re paying for.
Create a Virtual Vendor Card With Limits
If your employees require services to complete their tasks, it’s possible they may be tempted to overspend. Brex allows you to create virtual vendor cards with set spend limits, to ensure that external vendors and service providers are only capable of being paid within predetermined spend limits. You can set recurring limits, automatic lock dates, and instantly create new virtual credit cards with just a few clicks directly within your dashboard. This can provide peace of mind that all vendor spend remains firmly within budget, with no extra work.
If you are part of Brex Premium, employees can request these types of cards to the main administrator on the account, taking the manual guesswork off the admin’s plate. You or your Brex financial manager can simply review a card creation request and approve, deny, edit the request, while setting automatic expiration dates and instant memo-note tags. It’s an incredible time-saver and piece-of-mind-saver.
Take Advantage of Automatic Bill Bay
Another way to prevent over-charging is to adopt spend management tools which allow you to automate payments or send cash directly from your dashboard. When using Bill Pay with Brex, you can simply forward an invoice via email to us—everything is automatically entered into a draft payment ready to schedule. You’ll have the choice to pay or schedule at any time, using ACH, wire (even international), or check, keeping your cash outflow in control.
Unfortunately, conflicts can occur even if you came into the agreement with the best of intentions— your vendor dropped the ball on a project, or you’re receiving bills you never agreed upon, or you’re being unexpectedly overcharged.
What can you do?
Keeping track of vendor costs is the most proactive way to prevent or anticipate unexpected charges. Be sure to use a spend management tool that allows you to view upcoming recurring transactions, flags unusual spend, or alerts you to duplicate charges.
Withholding Payment: Weigh the Pros & Cons
If there is a conflict despite your being proactive, businesses sometimes consider withholding their payment.
This is the fastest way to get a vendor’s attention, but it’s not without its risks. If an order is far from an agreed- upon state and clearly needs modification or correction, it’s entirely appropriate to withhold payment until a workable solution is in place.
However, if there is a dispute about the project without in-writing evidence to the issue, this can lead to hot-heads, cessation of service, or broader legal disputes. Are you fully in the right here, if held to legal scrutiny?
Ask yourself: can your business handle this?
Cancel a Contract
If your contract doesn’t specifically include the right to terminate based on a breach or convenience, it’s generally not advisable to terminate a contract for poor service. Be wary of threatening cancellation— a vendor generally has a right to collect on a contract.
A good strategy is to ensure that any contracts you sign have an exit strategy clause included, detailing processes for ceasing service in case of violation of the service agreement.
Stand Your Ground
No one wants to bring issues to court. Most vendors want their clients to ultimately be satisfied with their product or services rendered, and unless there are broader considerations in mind, you can often get what you want simply by standing firmly by your original contract. Tell your vendor what you need to be satisfied, and give them the opportunity to provide.
If the situation truly seems untenable, consider bringing a third party in to evaluate the situation. Escalate the issue within your vendor’s organization; someone higher-up may have the authority—or wisdom—to solve your problem quickly and efficiently without legal action.
Everyone Can Win
Cooperative overcommuncation is the key to ensuring that both parties work harmoniously together. Just like you, your vendors are in business to make a profit, so it’s important to set attainable goals, write them down, and come to a full agreement before starting on work.
Brex makes it easy to track spend, monitor trends, issue virtual cards, and be effective at measuring your business’ growth. When scaling and investing in your business, stay on top with industry-leading technology provided by Brex All-in-One Finance.