Spend Management: A complete business guide
Remember those days when we used to get pocket money and at the end of the week, parents used to ask us how and where all did we spend the money? Most of us used to turn our best blank faces and perhaps run away the next time they came with the same question.
Well businesses are no different. With so many expenses running through the financial year, and significant boredom and monotony invading the need to file and reconcile them, everything goes for a toss resulting in significant losses.
Well, we are here to change that!
With our help, one would be able to:
* Understand spend and expense management
* Define spend categories
* Understand what is wrong with traditional spend management methodologies
* Understand the importance of expense policies
* Grasp the importance of automation of expenses and software
Spend Management
Spend management simply put is the processes put up by a business to control and track its spending effectively.
We can broadly group them among procurement and purchasing, tools and subscriptions, incidental spends and travel expenses. Essentially we are talking about anything but payrolls and standard operating costs.
This will include payments, made with company cards (online and offline), subscriptions and employee expense reports.
Every business has its own way of spending. Many businesses have standard expense policies, which the employees are required to abide by. Even the upper management of businesses with no clear expense policies would want spending to be done in a certain way.
Expense Management
Expense management is defined more on an employee level.
Essentially it helps to track and control the expenses incurred by the employees on the behalf of the company. Needless to say, reimbursements form the crux of this segment.
So if anyone were to summarise, spend management is defined on an organisational level whereas expense management is defined at an employee level.
While a simple and effective expense policy is helpful for any business, it becomes even more effective when it’s part of a broader spend management structure.
Now let’s dive deep!
Spend Categories
Expense management is defined more on an employee level.
Before we embark on the journey to find the best expense management solutions out there, we need to understand better, what categories business spends go into.
Of course companies spend in a wide range of categories and any company is different from the one next door.
But there are some classic spend categories, most of the businesses cannot do away with:
* Office and administrative expenses – This includes expenses like office stationery, printers, furniture, office merchandise etc
* Tools and subscriptions – One can’t have ’em all. Not all functionalities can be in-house. Hence most of the businesses have a few SaaS and other subscriptions to keep them running.
* Travel expenses – Be it an international conference or client meeting ten blocks away, business travel is on the rise and it needs to be dealt smoothly
* Food – This can be put in travelling or into even office costs (pantry), but an important category nevertheless
* Advertising – Businesses are moving away from traditional advertising channels and turning to online campaigns (Facebook, Google to name a few). This amounts to significant figures and can go haywire easily
* Design – If one doesn’t have an in-house design team, outsourcing is the only way out and usually they don’t come for free
* Consultants – When internal brainstorming hits a hard wall, consultants are bought in and they don’t come for peanuts. There will be lots of invoices to be processed and paid
Classic Spend Management
They say, old is gold, but it may not hold good at all times.
Expense management still in businesses means, hoards of paper receipts, messy excel sheets, lengthy and tedious and validation procedures. Needless to say it’s an archaic way of handling spends and expenses.
Before we get into the headaches involved in the old school way, let us understand how it works on a fundamental level
Process:
–>Employee makes an expenses
–>He/she collects the bills
–>He/she compiles an expense report
–>He/she submits the above for approval
–>If it is rejected, the employee is required to submit the expense report again
–>If it is accepted, reimbursements are sanctioned
Now one may wonder, what is so tedious about it. Well it is not (much) if one is looking at business of under 20 people. Now imagine a business that is in its growing stage and is adding on various cost over heads mentioned earlier with its manpower on a steady rise.
Now comes the below issues!
Issues
* Time, productivity and efficiency wastage – Lengthy hours spent on coming up with detailed and mundane expense reports could be spent on important work.
* Lack of visibility of spending trends – As there is no aggregation of data at any level, spending trends of any sorts is impossible, to gather which leads to minimal or nil reduction of avoidable expenses
* Increased chance of fraudulent claims – This can be accomplished with duplicate bills, exaggerated claims, false receipts etc
It is obvious that we need technology aided platforms to deal with the above headaches caused by classic spend management systems. But what good is an employee expense management software if it’s not aligned with the expense policy of the business. In the next session we will understand the importance of the same.
Expense Policy
Basics
Expense policy simply means a set of guidelines under which employees are expected to exercise their discretion on spending the business money and how they can seek reimbursements for any out of the pocket expenses.
Now this can vary among companies though they will have the below common points:
* A list of expense categories under which the employees can claim
* Expense limits for each category per person
* Reimbursement procedures
* Dispute management procedures
Now these are the basics; how do we go about developing a policy?
Policy development
Now this can take a while to develop. People involved, need to be mature and realistic about this.
The following things ought to be kept in mind, while developing a policy:
* Clarity is of paramount importance – Nobody is a fan of ambiguity. Employees should know what documents to submit while submitting a claim or expenses they can actually claim
* Simply simple – One cannot have a long, drawn out policy, which drags on for ages. Simple, straightforward and concise document will be appreciated by all
* It should be fair – all the employees should value in the document on equal grounds with no favoritism doled out to anyone or any designation
* It should be tax compliant – There should be no trouble with local tax authorities when taxes are filed on the year end
* Periodic revisions are important to keep it updated and in tune with current times
Importance of expense policy development
Now that we have taken the pain to create a document, we need to understand its relevance as well. With a well laid out expense policy the following can be achieved:
* Insights into spending trends – With proper policy in place, employees can spend only in allowed categories and spending is easier to monitor among the defined categories
* Decrease in unnecessary spends – With pre sanctioned categories, spending on unnecessary products or services can longer be done as the policy simply does not allow them
* Increased Turnaround Time (TAT) of reimbursements – As employees know what all to submit for their reimbursement, rejections rates are reduced leading to satisfaction of employees
* Decrease in fraudulent claims – As expense policy would be clearly covering this segment, any attempt to do so will result in clear penalisation, leading to employees abiding by the document and not attempt anything detrimental to the business
It’s time to make friends with technology
Let’s face it; it is difficult to make people follow any policy and even more difficult if its manual.
The best solution is to onboard a platform where in the policies are built which leaves employees no option but to follow them.
The expense management software domain is not an empty one. From excel cost tracker to receipt scanning to integrated account tools, market is flooded with applications and softwares.
Now when a business is considering spend or expense management automation, it is prudent to keep the following under consideration:
* Ease of automation – Primary motive of automation is reduce is time consumption. For example if a solution allows receipt scanning to be matched with claims a lot work is saved for many
* Ease of integration – It would be fairy tale if a company decides to simply adopt an expense automation system and do away with all the existing tools and subscriptions. Hence integration with key SaaS subscriptions like Xero, SAP etc are very important as it helps with a smooth transitioning
* Security – When spending is happening at so many levels, security of company funds is very important. An expense management tool with instant spend verification or one-time-use-virtual-credit-cards help the management rest in peace
* Flexibility – This means managing the spending the way an employee wants to. For example some tools give customisable cards to set monthly thresholds for certain spend categories
* Convenience – Spend management softwares help employees manage their expenses conveniently. For instance, one can just spend from the offline credit card with pre approved limit on an impromptu client dinner without having to spend from his/her pocket
* Device agnostic solution – The solution should be configured for PC/Mobile/Tablet etc so that anything from budget setting to approvals to reimbursement requests can be done by anyone from anywhere
* Real time policy checks – This is to ensure that spending is in limits and no fraudulent activities are being conducted
* Digital audit trails – The solution should be sacrosanct to capture all the transactions so that all the data is centrally located and upper management can view all kinds of spends aided by data analytics
Spend Management Platforms
There are two ways in which a business can go about this.
1. All – in – one platform
This is takes care of the spends incurred among all the before mentioned spend categories. This is the best way to keep all the expenses at one central place, where tracking and spend analysis can be done seamlessly.
This would also include online or virtual cards (for subscription and office related payments) and offline or physical cards, which shall have pre approved budgets and the employees can spend on the go. The best platform is one, which will facilitate invoice payments and reimbursements to the employees.
Best picks in this domain are Volopay, Spendesk, Divvy to name a few.
2. Expense management tools
Now one may not want to bring all the spends to one single platform and just stick to employee expense management.
Here the procedure is simple; employees on the field will spend and upload the expenses aided with pictures to the app instead of going for a tedious expense report which results in loss of productivity and time.
The best ones enable finance teams to track the spends real time.
Best picks in this domain is Expensify.
Before we say bye!
No matter how big the company is, it is wise to get on top of company spending for further reduction of costs and for improving the spending structure.
Unfortunately, lack of vision in this direction results in many businesses losing out in terms of time and productivity.
With our suggestions and informational tit-bits one should be poised to come up with the right spend policy and switch to a powerful spend management solution.
