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Environmental surcharges refer to additional fees vendors pass on to customers to offset the capital and operating costs to meet regulatory and environmental compliance requirements. Cost components of this expense may include the purchase of equipment, wastewater treatment, waste handling and disposal, testing, monitoring, and engineering costs to comply with environmental regulations and manage emissions.
Vendors typically show environmental fees as a separate line item from the product or service cost on the customer invoice. Some vendors may refer to this surcharge as an environmental handling fee, disposal fee, or hazardous waste surcharge. Each vendor determines the applicable surcharge based on existing and expected compliance requirements and costs, which can vary.
Businesses have to meet environmental and regulatory standards to operate legally. As a result, companies or utilities may apply surcharges to reflect the cost of operating and maintaining equipment to meet EPA regulations on power plant emissions and other environmental costs. Vendors may also pass on charges related to cleaning, recycling, or disposal.
For instance, certain types of hazardous waste require disposal by a licensed company. Electric utilities may also charge fees to recoup their costs associated with environmental compliance. These charges may be levied directly on your business, or as vendors pay environmental surcharges for cleaning or utilities, they may try to recover those costs by charging them to customers.
Vendors pass on their costs either partially or in full. The laws and regulations vendors need to comply with may include:
Compliance with all these regulations protects individuals close to a site, employees working on site, and the environment – but it can be complex and expensive.
Environmental surcharges increase product and service costs that Accounts Payable departments track. Monitoring environmental fees associated with each vendor and product category is critical to understanding and allocating costs.
Decision makers require information such as:
Achieving the level of detail decision-makers require can be challenging for a manual AP process. Invoice price exceptions due to surcharges may require a time-intensive manual review to find the culprit(s).
Automated solutions offer the capability to provide a granular view of company expenses, dig deeper into spending patterns, and keep a clear record of all costs associated with products and services, including added environmental fees.
Automated systems also free up time for your AP team so they can focus on designing strategies to deal with price variances, communicating unexpected price changes to decision-makers, and evaluating vendors regularly to eliminate inefficient spending and meet profit targets.
An environmental surcharge is one of the numerous add-on fees vendors pass on to customers. Monitoring all extra charges and individual elements that affect production and operating costs is crucial to control expenses and achieving positive margins amidst an inflationary environment. Leveraging technology plays a vital role in making better pricing and sourcing decisions and balancing demand and supply.
SoftCo’s AP automation solutions allow companies to enhance cost analysis and proactively deal with price changes by achieving 100% visibility and control over the procurement process.