The importance of data in spend management and how to use it to your advantage.
Spend management is an umbrella term used to refer to the process of requesting and approving spend, making payments, capturing transaction details, booking, tracking, managing, and analyzing business expenditure. Nowadays, businesses are becoming more data-driven in the way they handle their finances, especially when it comes to their spending. In fact, a study by Statista shows that the demand for big data and business analytics tools will reach up to $274.3B by 2022.
With that, here are some of the important aspects of spend analysis in procurement and how to use them to your advantage.
1. Improve transparency and visibility.
Spend management provides you with greater visibility and transparency over your finances — especially when it comes to your spending. It lets you monitor and improve your cash flows. Nonetheless, you can further enhance insights on your spend management through data, which allows you to have a better understanding of:
- Where your money is going.
- Who is making the purchases.
- What type of purchases are being made.
- Whether purchases are within budget.
- How purchases are to be booked.
- How such transactions can impact your company’s growth.
- What areas you can improve in your spend management process.
Through data, you can have consistent fact-based information regarding your procurements. This includes spending patterns, variances, and risks. It can also provide you with relevant data related to your relationships with your suppliers.
2. More control over finances.
When it comes to finances, things can easily get out of hand if you don’t make an effort to remain organized. Hence, one of the main benefits of spend analysis is having accurate financial data for your business, which gives you a clear overview of where your money is going. By having such knowledge, you can have greater control over your finances.
For one, it makes it easier for you to identify any issues that may arise during procurements and purchases. Likewise, you can quickly resolve them before they grow more serious. It can also help you categorize the various purchases in your organization and determine how to effectively manage them. This can also help you maintain compliance with regards to taxes, auditing, and managing supplier contracts.
Having staff with an accounting degree and career can also help businesses gain a deeper understanding on how their finances work. It makes it easier to make sense of the various data from a spend management platform and create actionable insights from it.
3. Ensure operational efficiency.
Approval processes can sometimes become too slow and time-consuming. This can create more bottlenecks in your workflows and operations. After all, there are various things that finance teams need to consider first before they release the funds needed for procurement. This includes:
- The person making the purchase.
- The reason or purpose of said purchase.
- The category of the purchase.
- Who approved the purchase.
- The budget needed.
- All the supporting documentations.
Leveraging data in spend management can boost visibility and transparency in your spending. This, in turn, can simplify approval processes within the company. It can provide finance teams and managers with real-time data regarding purchases and procurements. As a result, they can quickly make decisions on how to manage business spending.
4. Save money.
Your aim with spend management is to reduce costs in procurement. Thankfully, leveraging data and analytics can help you save money. It allows you to analyze spending patterns and gives you better insights on your relationships with your suppliers. As a result, you can determine cost-saving opportunities for your organization. For example, by taking the time to analyze the various deals and prices offered by your suppliers, you can identify which ones will be the most cost-effective and beneficial for your organization.
Other cost-saving opportunities can come in the form of optimizing your spend management workflows. By streamlining your processes, you can save on labor costs, as well as time. You can then allocate these cost savings into more productive activities, such as research and development, marketing, and hiring.
5. Make smarter business decisions.
Being data-driven helps you make smarter decisions for your business. It guides your decision-making with facts and figures, rather than unsubstantiated predictions and gut feelings. And with spend management analytics, you will be able to clearly see the cause and effects of all your past actions and spending. As a result, you can create better strategies for your organization.
For example, by leveraging data in spend management, you can identify those procurement categories where excess money is being directed. You can then choose to minimize such unnecessary spending to help you save. Spend management processes support better decision-making, and give you a better understanding of what causes the bottlenecks in your workflows and how you can resolve such issues.
6. Identify and manage potential risks.
Businesses often have to deal with various risks during procurement and purchases. It is important that you recognize what forms this might take and understand how it can impact your growth. This way, you can mitigate risks before it is too late. Hence, one of the most crucial spend analysis steps is risk assessment and management.
Spend analysis can help you identify potential risks when it comes to dealing with your suppliers and purchases. It can:
- Detect fraudulent invoices during transactions.
- Maintain compliance with internal control policies and external audit requirements.
- Evaluate each supplier’s performance and reliability.
- Ensure purchase approvals happen before expenses occur.
Without an established system for monitoring risks, you can potentially lose more money than expected. Worse, it can even result in financial liabilities for your organization. So take into account the various risks involved during purchases and procurements.
7. Strengthen supply chain management.
According to PWC, 96% of companies that focus on improving their supply chain performance achieve much better financial and operational results than their peers. Streamline your supply chain management by leveraging spend analysis. It can give you real-time data and visibility on your product lines, service offerings, and supplier relationships. As a result, you have more control over the various processes in your supply chain.
Through spend analysis, you have a clearer overview of the sourcing, contracting, and purchasing processes in your supply chain. This allows you to refocus your resources to address bottlenecks in your current strategies. Without real-time data, you can end up exposing your business to breakdowns in your supply chain. It can result in missed payments, delayed fulfillments, or damaged relationships with both your suppliers and customers.
Better spend management.
As business owners, you need to be conscious of all your business spending. Hence, you must choose the right spend management solution for your organization. This can help you leverage data and analytics into your current workflows and strategies. More than that, it provides you with tools to automate, digitize, and consolidate spend management processes in your organization. This makes it easier to keep track of where your money goes and how it affects your business’ growth. So go ahead and explore how spend analysis can help your organization. To give you a head start, check out Airbase to find out more about spend management.
Airbase offers a one platform solution to manage all non-payroll spend. It provides oversight and control over spending with real-time reporting and automatic syncing directly to your general ledger. Control all payments – physical cards, virtual cards, ACH, and checks – from one place. Close faster. Empower employees. Control spend.
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