Spend management describes how a business manages and controls its company spending to ensure continued profitability. Under the umbrella of spend management comes expense management, accounts payable, and the entire procurement process. Developing and implementing a strategy to better manage spend is imperative for ensuring efficiency and both short and long-term profitability.
Spend management is a broad concept that encompasses expenses that are initiated by employees. It also includes your organization’s procurement strategy, including ordering, invoicing, and sending payments to suppliers. To ensure that company spend stays within pre-established guidelines, it’s helpful to develop a strategic and effective spend management plan. Understanding spend management best practices will facilitate you in creating and implementing an efficient and productive spend management system.
Businesses of all sizes are aware of the need to manage every dollar carefully to get the greatest return on investment. However, when a standardized approach to managing spend activities is lacking, this can create a wide range of process inefficiencies. To avoid unnecessary spending, compromised supplier relationships, and value loss (as a result of inefficiency), companies may benefit from spend management optimization. This ensures continued growth across the organization. Below are ten spend management best practices you can use to improve your organization’s spend strategy.
Creating a comprehensive expense policy will ensure that all team members comply with company guidelines and recommendations. In addition, a reasonable expense policy can help minimize unnecessary expenditure and reduce any instances of fraud.
When creating an expense policy, you will need to include the typical expenses that team members usually incur as well as the spending limits related to each category. Additionally, expense policies should have a basic outline of the procedures employees need to follow to put a claim in for any expenses.
A solid expense policy gives your team members a baseline of how to proceed and provides you with better control over company spend. It helps to organize the process of categorizing and recording expenses while ensuring compliance.
Regular internal audits make it easier to see when any errors occur with processing invoices, billing suppliers, placing orders, or any other errors that would impact spend. Errors can occur at any stage of the procurement process, accounts payable process, or with expenses being claimed by employees. If your company is small, it will be harder to weather mistakes related to company spend. So, internal audits would be a vital component of an effective spend management plan.
Ultimately, it will be challenging to coordinate the various aspects of your spend management plan without the right tools. It’s essential to consider adopting a spend management solution that could integrate all of the separate units of your spend management policies and systems into one cohesive unit. One of the options large and small companies find helpful is automated spend management tools. Financial technology has evolved exponentially, and there are myriad options available to help streamline and optimize spend management processes.
There are several reasons to prioritize automation as a part of spend management best practices. Primarily, as your business grows, you will need to be able to automate repetitive manual tasks that are error-prone, time-consuming, and expensive. Benefits of automation in spend management include:
Performing frequent analyses of data offers increased transparency into the deep inner workings of your company’s financial systems and processes. With this insight, it’s easier to uncover expensive errors, process improvement opportunities, and recurring trends. Deep data analytics assist in making helpful future projections.
With frequent data analysis and insights, finance leaders can respond swiftly to any issues that arise. In addition, it offers critical information on vendor performance which helps in learning which vendors to prioritize and which ones to phase out.
Identifying KPIs vital to your company’s spend management strategy can go a long way toward increasing long-term profitability. Ideally, it would be possible to implement a strategy and adopt a set it and forget it approach. However, every company has different needs, and with so many variables in the procurement process, expense tracking, and accounts payable process, it’s essential to pinpoint key performance indicators. This way, you can track what is going on within the company spend metrics to ensure continued profitability. Relevant spend management KPIs include:
Establishing permissions and responsibilities is an essential component of any spend management policy. These act as guidelines for employees to follow regarding how to proceed when performing tasks related to the spending of company funds. Once automated spend management tools are implemented, these permissions and responsibilities can be established using the software.
Simplifying the spend management system eliminates confusion around adhering to spend management rules and guidelines. With a simplified system, employees know exactly what to expect and how to proceed as it relates to company spending. With automated software, the process of managing spend is immediately simplified. By using an automated spend management tool, all aspects of the procurement process, expense management process, and accounts payable process are unified into one cohesive platform. This makes for simplified collaboration, easy access to critical data, and the elimination of fraud and errors.
Getting the CPO, CFO, CIO, CMO, or CEO on board is an essential part of effectively building any spend management strategy. It’s important to inform company leaders of the benefits of creating an effective spend management strategy. Doing so will ensure that you have their assistance with making enhanced spend management a priority from the higher levels of the organization and down.
Data standardization creates greater efficiency and enhanced continuity in the spend management process. With increased data standardization comes an improved ability to ensure a readable and consistent format for all data and metrics.
Data standardization also allows you to properly combine separate applications and systems so that the data from disparate sources can be combined and analyzed to get a clearer overall picture of the company’s financial state. When creating a spend management plan, standardization of data is one of the premier requirements to understand and analyze the state of your data. In addition, standardized data enables a more streamlined workflow, services clients with greater efficiency, and saves time.
PayEm is a leading-edge financial technology tool that provides smart, intuitive features to enhance your company’s financial processes. It is a leading spend management solution that helps you to take your management strategy further for greater process efficiency and increased profitability.
Whether you need greater control over T&E spending and you need to issue virtual cards, or you’re searching for a tool that seamlessly integrates with your existing ERP system, PayEm offers just the right solution.
Enhanced spend management with PayEm:
Curious to learn more about spend management for your team with PayEm? Contact PayEm’s experts for a commitment-free, no-cost demo of the platform.
The secret to long-term financial stability lies in spend management. A business’s spend management strategy should never remain static
Spend management is often confused with expense management and vice versa. However, the two are distinctly different.