If you ask entrepreneurs about the secret to success, you’ll get a host of answers: add value to your customers, grow your network, leverage social media, and more. But when it comes to finances, a healthy business must keep as much revenue in the bank as possible. A spend management strategy is the best way to go beyond breaking even.
The one simple, tried-and-true spend management strategy is automation, and let’s explore this strategy in detail below.
Automation as a Spend Management Strategy
Suppose you’re a startup owner or have established a business on legacy processes. You’re most likely doing manual spend management.
Customized spreadsheet templates, tracking transactions in emails, filing paper invoices, and monthly reconciliations hours are time-consuming error-prone activities. And when you include employees spending out of pocket and claiming expenses, sharing company credit cards, or misplacing receipts, spend management becomes frustrating.
Automation as a spend management strategy can transform your accounting processes from slow and outdated to a real-time, end-to-end system across an enterprise. In addition, automation doesn’t require you to invest in IT resources to build a custom system from scratch.
A simple, intuitive spend management tool can give you the control you need over business expenses. For example, you can start tracking your business spend within minutes with a solution like Bento.
Benefits of Having a Spend Management Strategy
A good spend management strategy reduces wasteful spending. Without it, a business loses track of budgets, risks supply chain disruptions, and ultimately lets customers down. Therefore, spend management catches financial issues well before seriously damaging a company. Here are the main benefits of implementing a spend management strategy:
1. Identifying Spending Problems
Spend management isn’t just about tracking company credit cards. Businesses lose money through:
- Redundant Purchases
- Unused but auto-renewing software licenses
- Accidental payments and orders
- Payment processing errors
Once you spot where your money is going, you can eliminate these unnecessary costs and streamline your business.
2. Increased Profits
A spend management strategy identifies potential saving opportunities. For example, you can take advantage of early payments to get discounts or negotiate bulk orders.
Automated spend management also increases productivity which grows your bottom line. You can start seeing improvements in your profits within weeks or months of implementing automation in spend management.
3. Better Compliance
Financial reporting is essential to compliance, especially when it comes to taxes and audits. An effective spend management strategy keeps accurate transaction records and integrates with accounting solutions. This way, your business remains up-to-date on compliance regulations to maintain financial accountability.
4. Improved Vendor Management
A significant part of business spend goes to procurement, which involves choosing the right vendors, establishing contract terms, and quality control. A spend management strategy looks into all your suppliers to identify the best value for your money. It also reduces risk by choosing only trustworthy vendors with a proven track record. This is crucial if your business relies heavily on vendors, such as retail and manufacturing companies.
5. Minimized Data Loss
A lot of expenses slip through the cracks because of poor data management. Lost invoices and receipts are just as bad as duplicate payments and unauthorized employee purchases. A spend management strategy captures all spending data to keep your expenses in check.
6. Avoid Fines
Delayed payments and late tax filings attract hefty fees, which can dent your business finances. A spend management strategy helps you to plan ahead, deliver on time, and build a healthy credit status.
How Does Spend Control Software Save Time?
Build an effective spend management strategy with the following steps:
Step 1: Choose a Spend Manager
Put someone in charge of the spend management strategy right from the start. This may be yourself if you’re a sole proprietor, an in-house procurement manager or accountant, or an outsourced financial expert. This individual coordinates the spend management implementation process, from gathering expense data to rolling out an automated spend management solution.
Step 2: Identify Your Expenses
The most common sources of business expenses include:
- Business permits
- Software licenses
- Employee training, etc.
Of course, making a comprehensive list of business expenses isn’t easy. Look for a spend management solution with built-in expense categories to get you started.
Step 3: Consolidate Your Expense Data
In many cases, each business department has its own budget and expense-tracking spreadsheets and procedures. Automating your spend management strategy requires all your expense data in a single repository. This makes your spend data more manageable, easy to update, and securely hosted on a cloud server.
Step 4: Authenticate Your Expense Data
Spend data authentication requires two processes: verification and wiping. Verify your expense data by matching transaction records with inventory, invoices, vouchers, vendor emails, receipts, and more.
Wiping data means removing duplicates, typos, grammar errors, and other data mistakes. This two-step process ensures that your information is clean, searchable, and properly formatted.
Step 5: Categorize Your Expense Data
Businesses classify spend data into four main groups:
- Direct spend: Raw materials (goods and services) to create your products
- Indirect spend: Big purchases to keep your business running, e.g., maintenance fees, enterprise software licenses, and other operating costs.
- Tail spend: One-off, occasional, or uncategorized purchases that don’t cost enough to go through procurement approvals.
- Rogue spend: Indirect expenses that don’t come under procurement approvals, e.g., emergency equipment purchases or cybersecurity interventions after a malware attack.
Note: A spend management strategy is extremely helpful in tracking tail and rogue spend. You can make significant savings when you monitor these expense categories.
Step 6: Study Your Expense Data
At this stage, you can see patterns emerge in your spend data. Identify what’s recurring, pending, unnecessary, or excessive. Compare these expenses with your business bank accounts to anticipate spend scenarios and find potential savings. Consider these approaches to spend analysis:
- Vendor analysis: Rank your vendors by the percentage of your spending
- Category analysis: Break down your business spend by product or inventory
- Item analysis: Identify how much each part costs (ideal for manufacturing businesses)
- Tail spend analysis: Check which expenses occur outside procurement processes but accumulate over time
- Payment term analysis: Identify your payment schedules for all suppliers to check for discounts, interest rates, and other variables
- Contract analysis: Verify that all your vendor contracts meet compliance regulations
Step 7: Establish Your KPIs
Your spend management strategy needs key performance indicators (KPIs) to ensure its effectiveness. Spend management KPIs include:
- Spending per supplier
- Purchase cycle times
- Order costs
- Return on investment (ROI)
- Cost avoidance
- Cost reduction
These KPIs monitor whether your spend management strategy gives you more value for money and increases your revenue.
Step 8: Cut Costs
You can only discover your potential savings if your spend data is up to date. Estimate how much you can save if you:
- Eliminate duplicate orders
- Switch vendors or suppliers
- Negotiate for discounts from your vendors
- Restrict purchases to team leaders only
- Establish policies for purchase approvals
Take a creative approach to trimming expenses with your workflow efficiency in mind.
How to Automate Your Spend Management Strategy
You now have a clear idea of your business spend, and you know how long it takes to manually gather this data. The next step is to leverage automation in your spend management strategy to save time, money, and effort. You can choose to automate any or all of the following parts of business spend:
1. Expense Records
These include receipts and invoices that comprise the bulk of manual record-keeping. Automating these records vastly increases efficiency and eliminates human error. Choose a spend management software like Bento that comes with a smartphone app to capture and upload receipts and invoice photos. This simple habit can streamline your accounting workflow and save thousands of dollars.
2. Spending Plans
Create department-specific spending plans that indicate the types of purchases each team can make. Use an automated spend management solution to link these plans to the company debit or credit cards, with preset approvals and notifications of each transaction. You can also immediately block transactions that don’t meet your criteria.
The “buy now, claim later” mindset of manual expense tracking can cripple a business. Employees with authorized access to company debit or credit cards can also abuse this privilege.
Automation enables you to allocate spending permissions to everyone who uses corporate cards. For example, you can allow only your accountant to edit expense records and track each change with push notifications on your smartphone. You can also limit the amount certain employees can spend and only authorize purchases from approved vendors.
Automated spend management solutions give you a dashboard of your expenses for a bird’s-eye view of your business spend. They also generate comprehensive reports with just a few clicks. These reports show you where you’ve saved the most, the best-performing business segments, and where to optimize finance workflows. You won’t need accounting experience to generate and interpret these spend reports.
You can avoid friction between the finance and procurement teams by establishing spend policies around inventory, acquisition, and budgets. An automated spend management solution allows you to build these policies into the system so that each team understands how to utilize company funds.
Challenges of Automation in A Spend Management Strategy
The benefits of spend management automation are undeniable. Your business becomes more efficient, transparent, and flexible. You also get unprecedented financial insights to improve your operations and profitability. However, you must be aware of the challenges you may face as you transition to automated spend management. These include:
1. Inaccurate Data
Many businesses struggle to establish a spend management strategy because their expense data is all over the place. Growing enterprises find themselves in this situation as spend tracking gets less attention than sales and marketing. Give yourself ample time to overcome the initial hurdle of gathering, authenticating, and classifying expense data. After this, your automated spend management solution takes over, and the time and cost savings begin.
2. HR Limitations
Whether you’re a sole proprietor or have a procurement team, spend management takes plenty of valuable time. You must keep track of daily purchases, vet new vendors, and process purchase orders on top of other work demands.
Like any other software integration, automated spend management will require training to overcome the learning curve. That’s why you should choose an intuitive and user-friendly spend management solution that’s easy to integrate into your current workflows.
3. Poor Organizational Culture
You can tell a company’s culture by how it manages expenses. For example, spend management becomes difficult if each department works in silos, restricting cross-enterprise communication.
A micro-manager can limit spend management by restricting necessary expenses and hindering employees’ duties. Rogue accountants can also manipulate the books to their advantage if there’s no spend management strategy in place. That’s why integrating a spend management solution is often met with resistance, so be ready to help your team manage the change.
Why Bento for Business Is the Ultimate Spend Management Solution Today
Bento is an essential tool for building an effective automated spend management strategy. Companies no longer need to wait for an external audit to reveal discrepancies or lose money through manual expense tracking. With Bento, you can transition your company from credit to debit expenses, set spending limits, and digitize your accounting and procurement processes.
Small startups to multinational enterprises can all benefit from Bento spend management. Here’s why:
- You don’t need a credit rating to qualify for a Bento corporate card
- Bento’s AI-powered receipt capture automatically matches your photo-uploaded receipts to your expense records
- The MyBento smartphone app tracks expenses in real-time
- If you travel a lot for business, use a Bento card to reimburse your expenses faster than monthly credit card reconciliation processes
- You can export all your spend data to your accounting software
- You can opt for a Bento virtual card for better online fraud protection
- And plenty more!
Ready to automate your spend management strategy? Start with a Bento demo today.