Spend management boosts business profitability, minimizes supply risks, improves cash flow, lowers borrowing needs, maintains compliance, manages supplier relationships, provides insights, and cuts costs. Lack of centralization, complex processes, unclear purchase policies, correctly categorizing expenditures, cleaning spend data, effective cash management, and human error are the common spend management challenges your company may encounter.
Ineffective spend management may result in disorganization, poor supply chain management, and increased costs. However, better spend management strategies and best practices can help mitigate these risks. This article outlines eight ways to improve your company’s spend management.
- Implement a spend management solution
Implementing a detailed spend management software solution is an excellent way to improve your company’s spend management while building competitive strength. It effectively boosts productivity, eliminates needless expense and waste, and generates value via digital transformation.
Spend management software (procure-to-pay/ P2P software) helps manage the acquisition of goods and services, gain spend openness, maximize ROI, minimize risks, automate business processes, enforce compliance, and generate value and cost savings through insights.
This solution helps your company consolidate its spend management and consolidate its improvements with the overall systems. Spend management software improves efficiency, enhances risk management, lowers goods and service costs, provides robust business intelligence, and ensures a completely integrated software setting. Consider implementing the right spend management solution for more business value and a healthier bottom line.
- Identify expenditure sources
Expenditure sources might differ based on the nature of your business. They may include rent, employee salaries, utilities, marketing and advertising, licenses, training, insurance, and others. Purchase orders, supplier invoices, goods receipts, and supplier payment information can help you identify your expense sources.
- Conduct a spend analysis
Spend analysis involves assessing procurement spend to increase efficiency, lower costs, and boost supplier relationships. It lets your company track and identify possible savings while optimizing procurement processes. Spend analysis can help your company understand its cost structure, which is essential for business management and growth. It enables businesses to forecast their expenses and revenues.
You can conduct spend analysis through manual data compilation from transaction sources. However, this method is time-consuming because it requires you to go through all transactions to locate procurement data. Alternatively, you can use spend analysis software to accurately and quickly compile procurement information. You can integrate the software into an existing procurement system.
- Automate spend management processes
Automating spend management processes ensures faster processing times, gives you spending visibility, builds an improved employee experience, ascertains legal compliance, and provides better risk management. Eliminating shared credit cards, building supplier relationships, scrapping petty cash boxes, automating expense management, and using reporting and analysis software are tweaks you can implement to simplify your employees and finance department workflow.
When looking to automate spend management, a custom approach would be ideal. You can start by managing your bills and invoices electronically, preventing the risk of missing payments. You may also shift mileage management to digital software where work trip fuels costs and distance are calculated automatically.
- Centralize your company’s spend data
Your accounts department should take charge of establishing and controlling the spend data repository. They can leverage automation to keep and maintain spending records. Mandating records for frequent audits is a best practice. Centralizing data can be challenging. And since the information is sensitive and crucial, not everyone should access it. This means putting someone in charge of classifying and processing data in batches is essential.
- Clean, verify and categorize data
For spend data to make sense, it should be processed. This means eliminating duplicates, verifying employee and supplier details, correcting spelling mistakes, and ascertaining that your data is recorded in a single format and one currency. Department heads and reliable staff can certify that the data is clean and legitimate.
Once you prove that the data is transparent and clean, look for as many exceptions and regularities as possible. This step will help you see the expenses that fall in the same group concerning department, nature of payment, and purpose and group them.
- Forecast spend
Spend forecasting is essential to meeting your company’s finance and procurement targets. It combines present and historical spend data with quantitative and qualitative procedures and offers future spending insights. Spend forecasting gives decision-makers a holistic view to improve sourcing decisions, generate more value, and cut future costs. It can help your company manage its funds’ outflow effectively while predicting what will be required, where, and by when.
- Create a spend management strategy
Using the data you’ve gathered, streamlined, and assessed, you can develop a spend management strategy that you can use to execute the changes you settled on depending on the project. Since managing change can be difficult, seek the stakeholders’ acceptance and participation for successful implementation.
Effective spend management is essential for a healthy bottom line and business growth. Use these tips to improve your company’s spend management.