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The Definitive Guide to Spend Management

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03

How did business spending become such a problem?

The growth of distributed spending.

The rise of card use, and the development of reimbursement tools over the past 25 years, has marked a change in company purchasing patterns. The shift from a centralized procurement model to one where spending is in the hands of individual employees is referred to as distributed spending.

Travel expenses have long been a substantial part of distributed spending, and the proliferation of SaaS products, and their subscription pricing model, has led to an acceleration of employee direct spending on the software.

This trend has helped teams be more productive. With more control of their resources and spending, they can apply their own expertise and familiarity with their needs, and are generally more efficient as a result.

The freedom that a corporate card provides eliminates a substantial amount of back-and-forth with the companie’s AP teams. But tying company credit card purchases to business operations has been a challenge.
The growth of the distributed workforce.
The movement to remote work within SMBs made necessary by the pandemic lockdown is expected to become more permanent. Spend management offers the right mix of independence for employees and controls for management: the freedom that employees need to make purchases, balanced against the controls that management needs for budget discipline.

Decentralized vs. centralized.

In management terms, distributed spend is a decentralized practice, since purchases are made by individual employees without scrutiny by an intermediary (e.g., an IT or procurement team) before they’re executed. This contrasts with centralized spending, which is where an oversight intermediary has insight into spending, and therefore control, before it occurs or is committed to.

As with any decentralized decision-making practice, the efficiencies garnered by putting power directly into the hands of the employee need to be balanced against controls for policy and budget compliance. Yet the payment mechanisms for distributed spending mean that the accounting and finance teams are left in the dark until a credit card statement, expense reimbursement, or invoice is submitted. And, even once those documents are received, accounting resources must often undertake a sleuthing mission to find critical information:
  • Who made the purchase?
  • How should it be categorized?
  • Who exactly is to be paid?
  • What are the payment terms?
  • Who approved the payment?
In short, the decentralized practice of distributed spend creates a wake of chaos for the accounting team.

The problem is multiplied as companies grow by adding new hires, each empowered to make their own purchases. The impact can be significant and even act as a constraint to a company’s growth. Improving operational efficiency with automation tools allows finance and accounting teams to accommodate growth without having to add resources themselves.
Accommodating centralized spending.
In spite of the rise of direct purchasing by employees, centralized spending, especially for large purchases or ones that carry more complex contracting needs, is still something that accounting teams focus on. A modern spend management platform accommodates both centralized and decentralized spending using the same workflows and automation. When the system that handles purchases made directly by employees also handles an invoiced payment that requires AP to execute payment, there is continuity.
Thejo Kote, Founder and CEO, Airbase
Thejo Kote
Founder and CEO, Airbase
Few AP solutions are equipped to handle many employees conducting their own purchases, and fewer still even consider globally distributed teams.

A priority for finance teams.

The various problems that spend management solves are recognized as ones that need addressing. When polled about their top priorities for 2021, 745 finance and accounting professionals ranked  improving their teams’ systems and processes as a top priority. It had the highest representation at 41% of respondents. (Source: The Airbase Annual Benchmark Survey of Finance Professionals)
2021 Priorities by Headcount Size
Top 3 priorities going into 2021 broken down by number of employees.
(Low headcount = 50–100; Mid headcount = 101–500; High headcount = 501–1,000)

Guides and ebooks

The Definitive Guide to Spend Management

Guides and ebooks

The Definitive Guide to Spend Management

03

How did business spending become such a problem?

The growth of distributed spending.

The rise of card use, and the development of reimbursement tools over the past 25 years, has marked a change in company purchasing patterns. The shift from a centralized procurement model to one where spending is in the hands of individual employees is referred to as distributed spending.

Travel expenses have long been a substantial part of distributed spending, and the proliferation of SaaS products, and their subscription pricing model, has led to an acceleration of employee direct spending on the software.

This trend has helped teams be more productive. With more control of their resources and spending, they can apply their own expertise and familiarity with their needs, and are generally more efficient as a result.

The freedom that a corporate card provides eliminates a substantial amount of back-and-forth with the companie’s AP teams. But tying company credit card purchases to business operations has been a challenge.
The growth of the distributed workforce.
The movement to remote work within SMBs made necessary by the pandemic lockdown is expected to become more permanent. Spend management offers the right mix of independence for employees and controls for management: the freedom that employees need to make purchases, balanced against the controls that management needs for budget discipline.

Decentralized vs. centralized.

In management terms, distributed spend is a decentralized practice, since purchases are made by individual employees without scrutiny by an intermediary (e.g., an IT or procurement team) before they’re executed. This contrasts with centralized spending, which is where an oversight intermediary has insight into spending, and therefore control, before it occurs or is committed to.

As with any decentralized decision-making practice, the efficiencies garnered by putting power directly into the hands of the employee need to be balanced against controls for policy and budget compliance. Yet the payment mechanisms for distributed spending mean that the accounting and finance teams are left in the dark until a credit card statement, expense reimbursement, or invoice is submitted. And, even once those documents are received, accounting resources must often undertake a sleuthing mission to find critical information:
  • Who made the purchase?
  • How should it be categorized?
  • Who exactly is to be paid?
  • What are the payment terms?
  • Who approved the payment?
In short, the decentralized practice of distributed spend creates a wake of chaos for the accounting team.

The problem is multiplied as companies grow by adding new hires, each empowered to make their own purchases. The impact can be significant and even act as a constraint to a company’s growth. Improving operational efficiency with automation tools allows finance and accounting teams to accommodate growth without having to add resources themselves.
Accommodating centralized spending.
In spite of the rise of direct purchasing by employees, centralized spending, especially for large purchases or ones that carry more complex contracting needs, is still something that accounting teams focus on. A modern spend management platform accommodates both centralized and decentralized spending using the same workflows and automation. When the system that handles purchases made directly by employees also handles an invoiced payment that requires AP to execute payment, there is continuity.
Thejo Kote, Founder and CEO, Airbase
Thejo Kote
Founder and CEO, Airbase
Few AP solutions are equipped to handle many employees conducting their own purchases, and fewer still even consider globally distributed teams.

A priority for finance teams.

The various problems that spend management solves are recognized as ones that need addressing. When polled about their top priorities for 2021, 745 finance and accounting professionals ranked  improving their teams’ systems and processes as a top priority. It had the highest representation at 41% of respondents. (Source: The Airbase Annual Benchmark Survey of Finance Professionals)
2021 Priorities by Headcount Size
Top 3 priorities going into 2021 broken down by number of employees.
(Low headcount = 50–100; Mid headcount = 101–500; High headcount = 501–1,000)

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