Decentralised Spending: A Hidden Challenge for CFOs

The role of today’s CFO has evolved to include strategic leadership, innovation, and cost optimisation.

But despite these growing responsibilities, 60% of finance representatives in Europe claim that the finance function remains reactive, consumed by the day-to-day needs of the business instead of focused on strategic objectives.

Decentralised spending is one of the biggest challenges contributing to this time and profit drain. It’s a budgetary black hole that hoovers up finance teams’ time and resources. But it isn’t just about time.

Manually managing decentralised spend can lead to costly inefficiencies, risks, and a lack of control if you’re not proactive about managing it.

In this article series on how managing business spend is changing, we’ll get into the foundational concepts of decentralised spend management, and how a proactive approach can free your time to drive growth and innovation for your company.

What is Decentralised Spending?

There are two broad types of business spending – centralised and decentralised.

1. Centralised spending: In large organisations, centralised spending represents 20% of transactions. They’re often managed, controlled, and executed by procurement teams.
2. Decentralised spending represents a whopping 80% of transactions. It takes many forms via credit cards, cash, and employee reimbursements. In your business, it might look like planned spending – like a laptop for a new joiner or ad spend for online advertising. Or it might look like a more urgent purchase like giving your service engineer access to the money they need buy a component for repairs in a customer’s home. If you work with nomadic employees like travelling sales reps, it might look like paying for transport and accommodation abroad.

Decentralised spend is a fact of the modern, agile business. This kind of tactical, discretionary spending helps businesses jump on new opportunities before it’s too late and keep business moving as usual no matter what happens.

All businesses have an approach to managing this today. But the status quo of depending on traditional procurements is failing, creating bottlenecks that hamper their teams’ ability to focus on growth and do their jobs well.

Given that growth is a top priority for 62% of CFOs, empowering teams with a proactive approach to decentralised spend could empower teams and speed up their decision-making and agility.

What are the Different Types of Decentralised Spending

Decentralised spending takes various forms:

1. Nomadic Spending: It’s every expense your employees encounter on-the-move that helps your business grow.Examples include local transportation, flights, hotels, taxi, or meals.
2. Planned Team Spending: It’s the strategic and budgeted-for expenses that don’t fit into your procurement processes.Examples include digital ad subscriptions, conference sponsorships, low-value IT equipment, software trials, or gift cards.
3. Unpredictable Team Spending: Unlike planned spending, unpredictable team spending involves ad-hoc purchases that arise suddenly and may not have been foreseen when budgeting.Examples include unexpected toll fees, vehicle breakdowns, sudden tool failures, urgent hardware replacements, emergency medical supplies, or damaged store fixtures

While each type of decentralised spend is found in most businesses, the amount of spend in each category will vary from business to business.

So, why is Decentralised Spending a Challenge for CFOs?

According to McKinsey, the typical finance organisation now spends about 10% more time and resources on FP&A activities than it did a decade ago. The increase in admin overhead reflects the growing complexity of financial operations, of which managing decentralised spending is a part.

Today, FP&A employees spend an average of 75% of their time gathering data and administering processes, leaving just 25% of their time for more valuable financial analysis for the business.

That’s why so much of the financial team’s effort is spent on low-value tasks, rather than strategic activities that drive business growth.

What Does Progressive, Proactive Decentralised Spend Management Look Like?

CFOs today face the challenge of piecing together a fragmented financial picture. Because multiple departments now handle their own budgets and expenditures, the risk of errors, overspending, and fraud are heightened.

Overall, as the needs of the business continue to grow, a traditional, reactive approach to reconciling decentralised spend will become more time consuming and less effective.

That’s why a proactive, progressive approach to managing decentralised spending is the way forward. Businesses need the controls to allocate budget allocation more easily, establish tighter spending limits   track decentralised spend, simplify expense reporting, and improve forecasting – without the added hours required to see these benefits.

It’s what we call a Progressive Finance mindset. It will help CFOs tame decentralised spending while empowering both employees and their business to accomplish more.

Want to learn more? In the next instalment in this series, we’ll explore how to establish a decentralised spend management approach that brings order to slow, messy and inefficient business spending.