What is Spend Management and Why Does it Matter?
Spend management is the practice of tracking, analyzing, and controlling business expenditures. It helps organizations reduce costs and operate more efficiently, making it easier to identify cost savings opportunities.
What are the benefits of spend management?
When done right, spend management will improve a company's financial performance - sometimes substantially. Some of the more specific benefits of spend management include:
- Improved visibility into what the company is spending money on, how much is being spent, and who is being paid.
- Increased operational efficiency through the reduction of excess spending and waste.
- Reduced risk of fraud and compliance issues by ensuring adherence to company spending policies and regulations.
- Actionable insights that identify areas where money can be saved or contracts can be renegotiated.
- For larger organizations, a more effective procurement process with better insights into supplier performance and pricing.
- Greater visibility of unmanaged costs like tail spend and maverick spend.
Who's responsible for spend management?
Responsibility for spend management will depend on the size and structure of a company. Typically, it will be handled by finance and accounting teams.
Accounting will be responsible for monitoring spending against budgeted amounts and ensuring that invoices are paid on time, while finance will handle more strategic aspects, such as tracking spending patterns.
The procurement department and other teams should also be involved in the process where relevant or necessary.
What does a spend management process involve?
A successful spend management process should be repeatable and tailored to the business. In general, it consists of two main parts:
1. Collect and analyze spend data
This includes invoices, credit card transactions, and employee reimbursements. When first implementing spend management, a single source of truth for all spending data should be established as well. This could be an ERP, a dedicated spend management platform, or a business intelligence platform.
Once spend data is in one place, a detailed spend analysis can be performed to establish metrics to track against budgeted amounts and gain actionable insights into spending patterns. This will make it possible to identify budget overages, wasteful spending, and potential cost savings opportunities.
2. Develop and implement an action plan
Once opportunities to save money have been identified, develop an action plan to implement cost-savings measures. This could include a roadmap for renegotiating supplier contracts, reviewing SaaS subscription levels and user amounts, canceling no-longer needed or redundant services, or transitioning to less-expensive solutions, suppliers, or vendors. It could also include developing or improving policies and procedures to ensure adherence to spending rules (e.g., travel, entertainment, supplies) -- or implementing systems that enforce adherence to policy as early as the credit card swipe.
Before deciding to change vendors or reduce subscriptions, it's important to speak with the teams involved and understand the reasoning behind current spend levels or the vendor of choice. There may be good reasons why marketing or sales teams use a specific tool, for example, and switching costs may outweigh any potential cost savings.
Additionally, it's important to establish clear communication with vendors and suppliers to ensure they are aware of any relevant changes to your company's policies and procedures. Spend policy changes should also be clearly communicated to employees.
Additional Tips for Achieving Effective Spend Control
Beyond periodically reviewing spend, there are some steps worth taking to help maintain spending discipline on an ongoing basis. Some of the most important ones include:
- Creating an effective purchasing process that includes a review by multiple stakeholders before any purchase is made.
- Ensuring sure spending is tracked and managed on a real-time basis.
- Ensuring that all employees are aware of and adhere to any spend and expense policies in place.
- Using automated tools can help reduce manual processes such as data entry and reconciliation.
How Torpago Enables Spend Management
Thanks to technology, spend management doesn't need to be a manual process, and employee expenditures can be controlled automatically.
The Torpago platform enables companies to implement an effective spend management strategy by combining a rewards-enabled credit card with a backend that improves spend visibility while reducing (if not eliminating) the need for reimbursements. Our platform automatically categorizes credit card transactions for easy review, makes it simple to set up spending rules and policies, and can generate virtual credit cards on an as-needed basis for specific spending needs. To learn more, download our eBook below!