Spend management is the tried-and-true process of ultimately managing all supply chains and corporate procurement to identify and maximize all money invested. It ensures whether firms make effective purchasing and sourcing policies that benefit both the end result and the company’s goals.
Simply said, a spend management system is any solution designed to assist your company control employee costs swiftly and efficiently. It is the process of optimizing the value of a company’s spending while minimizing expenses, limiting financial risk, and enhancing relationships with suppliers.
Expenditure management is a subset of acquisition that includes spend monitoring, supplier selection, and supply chain management. Spend management software assists chief accounting officers and chief finance officers in keeping track of their spending.
According to Tallie’s 2019 Travel & Expense Management Trends Report, 46% of organizations do not measure the cost of processing expense reports, and 43% still handle expenditure accounting administratively.
Best practices in spend management integrate and automate all spend-related processes from source to settlement, ensuring that purchases are made as intended. Suppliers are paid following contracts.
By having a broad view of expenditure, controllable expenses may be managed more efficiently, resulting in increased organizational value. The data is calculated from the following:
- Increased efficiency – as a result of automating laborious glitch operations.
- Reduce supply costs and risks – by knowing precisely what is purchased, from whom, and how much increased cooperation between trade agreements and cross-functional organizations.
- Increased productivity — by reserving time and resources for more strategic pursuits.
This can cover the entire spectrum, from simple receipt scanning technologies to lines of credit connected to payroll systems.
Notwithstanding these new expenditure management technologies, organizations continue to rely on a few strategies to manage corporate spending:
- Petty cash: Many businesses keep a box of spare money and coins on hand. And no one knows precisely how much there is and what the regulations are.
- Business cards: Despite the danger of fraud, the lack of responsibility, and the delayed scrutiny of spending, many companies can’t seem to break the habit of using company credit and debit cards.
- Expense claims: The feared expense claim completes this list of unproductive approaches. Employees here pay for company expenditures out of their wallets, save records, fill out a declaration form, and wait for months to be spent.
Fortunately, budgeting does not have to be as difficult. There are now more accessible methods for companies to pay for products, and personnel can control their costs in a more accessible, secure, and timely manner.
Why is Spend Management Important?
Business expenditure is often done in groups. While the marketing and sales teams are busy spending money on advertising, other departments such as IT, Personnel, and Logistics are also depleting the company’s budget. A corporation may quickly get into difficulties and run out of cash if it does not grasp how its money has been spent.
Spend management is critical for small and medium-sized businesses because it gives transparency and control overspending, which can decrease risk, promote growth, boost profitability, and bring operational improvements across the board.
Everyone benefits when an organization has complete control over its expenditure. Better rules and spend software solutions may save time, boost growth, and enhance the bottom line for leaders, teams, and even individuals.
Benefits of Spend Management
When a company’s expenditure has to be controlled, it frequently turns to spend management. Spend management is excellent for controlling expenses and increasing revenues over time. However, many people are unaware that budgeting may also assist the entire organization to save time, decrease risk, avoid problems, and make data-driven decisions that propel the company forward.
Here are some of the primary advantages that spending management may provide at every level of a business.
- Transparency of business spending in real-time
Do you know where the money in your organization goes? Spend management software records and reports wherever payments are made throughout an organization in real-time and compare that spend to previously authorized budgets.
Reports may be sorted to offer specific views of your spending data, making it simple to assess how departments, positions, and people manage corporate money appropriately.
- Financial data that is correctly estimated
Spend management software gathers and categorizes a company’s spending data while reporting it in real-time. Only 27% have mechanisms in place that automatically detect out-of-policy spending. That means either accounting is manually reviewing reports, or nonapproved items are slipping by—that’s a ticking audit time bomb, to not mention a cash drain.
Spend software functions as a single source, where firms can do real-time expenditure analysis and acquire the data you need to know exactly how money is being spent throughout the firm. The information is safely held in one centralized platform.
- A well-defined expense procedure and spending policy
Employees can acquire whatever they need while adhering to corporate budgets more quickly and efficiently when the proper framework is in place. Companies can design expenditure rules and authorization operating procedures tailored to their specific structure, stage of growth, and company objectives.
Employees may rapidly make sales orders while on the move using a secure cloud-based system. And approvers receive real-time alerts anytime a sales order for someone on your team needs to be approved.
- Better risk management and internal controls
Unauthorized purchases or an unanticipated disaster with a vendor will often account for a modest fraction of total business expenditures. However, in severe circumstances, these difficulties might lead to a company’s demise.
Your financial staff can benefit from the use of the correct software.
- Stop irrational spending before it gets out of hand.
- Ensure that purchase approvals occur before, not after, the expenditure happens.
- Prevent bogus bills from being paid.
- Maintain a record of each vendor’s performance by identifying any possible supplier concerns.
Ensure that all of your internal control procedures and external audit standards are followed.
- Efficiency in operations
Spend management software saves a significant amount of time for teams across the organization. Clear spend regulations and expenditure systems that operate on mobile devices decrease bottlenecks and make it easier to seek and get clearance for purchases, even when individuals work off-site or on the road.
Better processes and technology can reduce cycle times, minimize duplicate transactions and sales orders, minimize late payments and fines, and give total spend insight throughout the whole acquisition process for finance and purchasing teams.
- Lower spending and more earnings
Spend management software immediately adds to a more robust bottom line by assisting businesses in eliminating wasteful expenditures, avoiding late penalties, catching duplicate invoices, and securing cheaper costs through improved supplier relationships. Reduced pricing and bulk discounts can be negotiated. Reduce expenses by canceling unnecessary contract renewals, optimize working capital, and identify potential pitfalls.
- Insights that help you make better business decisions
Cash flow problems lead 82% of firms to fail. Even if a company’s executives are familiar with financial data, the spreadsheets used by the accounting department aren’t always helpful in undertaking extensive, real-time, and beneficial expenditure analysis.
Spend management software offers the amount of depth and capability required by executives and department heads to forecast spend scenarios, identify and use patterns in spend data. Discover undiscovered cost reductions and effectively deploy savings to build up the company, benchmark organizational efficiency, and boost profits.
Characteristics that Distinguish Excellent Expenditure Management Software
When it comes to spending software solutions, not all of them are made equal.
You don’t have to wait till the end of each month to review your expenses. Instead, look for a system that records expenditure in real-time and provides a consistent overview of employee spending.
- Here’s a basic rundown: Something is wrong if you can’t perform a simple expenditure analysis at a glance. Good spend management software displays expense data.
- Payment alternatives that can be customized: Not every employee needs access to the same amount of money. Your program should allow you to specify how much money each individual has access to and what they may spend it on.
- Simple document capture: Companies spend a significant amount of time keeping and collecting documents such as bills, invoices, and sales orders. A solid software solution allows you to rapidly and easily capture and file these records.
- Time-saving mechanization: The major disadvantage of traditional expenditure management is the amount of time it requires. A good expenditure management platform will eliminate unnecessary tasks and allow you to focus on other priorities.
This may appear to be a lot, but it all boils down to one basic idea: choose a solution that allows you and your team to quickly, securely, and conveniently complete the procure-to-pay process.