Spend management is a completely new approach to spending company money. It handles the full lifecycle of every dollar a company spends outside of its payroll. Thanks to its foundational pillars — accounting automation, approval workflows, and real-time reporting — spend management improves a company’s spend visibility, operational efficiency, and bottom line. This blog takes a look at five central steps towards effective spend management and how your business can take advantage of it.
1. Centralize all spend data.
Spend management begins with a bottom-up, centralized data collection process that brings together all spending information — including invoices, reimbursements, and credit card transactions — into one place. This allows finance to compare the actual spend against budgets and forecasted numbers, ensuring that money is being spent according to plan.
2. Define and track spending policies.
Automating approvals helps ensure spend policies are followed. The finance team defines the spend policy and the budget based on how much a certain department or employee can spend, according to their role and job function. They will also define approval workflows that determine who approves each expense, based on criteria such as amount, department, and item being purchased. Spend management software that is integrated with accounting automation will route expenses for approval according to these defined rules, ensuring that spend does not exceed budget and only goes toward necessary purchases.
3. Implement a purchase order and invoice approval process.
A purchase order is a legally binding document that confirms the buyer agrees to pay for the items they are ordering from the seller. The use of purchase orders helps ensure that only approved vendors are used and proper procedures are followed when spending company funds. Purchase orders provide control and visibility over spending, although they can be administratively cumbersome without the right accounts payable systems in place.
Similar to purchase orders, invoices should also require approval before payment is authorized. An invoice approval process allows for the review of each invoice to confirm that it meets company standards and was billed at the correct price. This procedure also deters fraudulent activity by providing an extra layer of scrutiny on all spend related to vendor invoices.
4. Create dashboards for reporting.
Real-time reporting on financial information is critical for making sound spend management decisions by providing an at-a-glance view of spending across all business units, budget lines, and suppliers. This information can be used to detect anomalies in spend and investigate potential savings opportunities.
Accounting automation, including an automated sync to the general ledger, is crucial to keeping this financial information up to date. An automated spend management platform records and consolidates all spend activity as it takes place, without the need for time-consuming manual data transfers and reconciliations.
In addition to real-time reporting, it’s also important to have historical data at your fingertips. A good spend management solution will provide reports spanning months or even years, so you can analyze spending trends and identify opportunities for improvement.
5. Conduct spend analysis.
Regular spend analysis is essential for understanding where money is being spent within the company. This process can reveal areas where cost savings may be possible through renegotiating contracts, switching to a different supplier, rerouting supply chains, or rescheduling payments.
Although spend management can seem like a daunting task, following these five steps will help you to streamline your company’s purchasing and save money. For more information on spend management, or for assistance implementing these steps in your business, contact us today.