What is spend management? – A primer (part one)

You will likely have heard the term spend management bandied around over the last couple of years.

This is a relatively new approach to managing company expenditure, covering employee expenses and general business-wide spending. Rather than just making the numbers add up, spend management has many value-adding benefits, including freeing up staff resources and being a driver of business growth.

Running spend management effectively allows companies to:

• Optimise cash
• Enable employees to procure necessary products and services
• Save significant time
• Gain visibility and real-time insights to allow for better decision-making.

In this two-part guide, we’ll run over the basics of expense management, consisting of:

• What is spend management?
• What is expense management?
• How to roll out a robust expense policy.
• Common spend pain points
• Features of leading spending management tools
• Why you should consider making the switch
• Spend management use cases

What is spend management?

This includes office equipment (i.e. laptops), through to Software as a Service (SaaS) subscriptions and online advertising costs.

There are several approaches to spend management, including company-expense policy guides (requiring individuals to spend out of pocket, use petty cash or company credit cards for payments) and modern software solutions, such as Soldo, that provide employees with an all-in-one platform and prepaid card solution. These tools can be set up to recreate expense policies and company structures and provide CFOs with a real-time view of spend that integrates seamlessly with leading cloud accounting software providers.

What is expense management?

Expense management is a sub-category of spend management and relates to tracking and controlling employee spend.

Until recently, expense management has been more familiar to most than spend management because all businesses have systems in place for employees to submit their expenses. This can be relatively rudimentary and consist of employees incurring expenditure out of pocket, filling in template spreadsheets and submitting their receipts at month-end. The traditionally manual-led nature of this exercise results in single expense reports taking 60 minutes from submission through to payments.

Expense management spend typically includes travel, subsistence and client entertainment – categories that tend to be used by employees when they are out of the office.

How to roll out an expense policy

The key to implementing a successful spend management solution is to first define and roll out a clear company-wide expense policy.

This should give guidance and set rules on:

• What employees can/cannot spend funds on (i.e. banning of alcohol for subsistence)
• Spending limits (with manager approval needed for requests exceeding limits)
• When to submit expense claims by (so finance can process in time for month-end)
• Standards expected when reports are submitted (how to classify transactions and setting the appropriate VAT rate)

Expense policies should be reviewed once per year, with any changes being flagged to employees in advance of them becoming effective.

Updated policies should be sent out to all employees via email at least two weeks before becoming effective, with the bodies of emails clearly stating their start date.

Common spend pain points

Human errors

Manual led spend management processes can suffer from human errors due to employees taking transactions to the wrong categories, entering the wrong values or not applying VAT rates correctly.

Slow submission

When employees are required to do the heavy lifting and enter data themselves, this also often results in expense claims needing to be chased for by finance and team members when they become due. It’s hard to blame staff for this approach due to their required input being a distraction from more value-adding activities.

Additionally, slow submissions create additional pressure at month end for finance teams and can delay the output of monthly management accounts.

Lack of consistency

Department and line managers don’t always follow company expense policy consistently, which can result in mismanagement of cash and budgets being harder to meet. This can either be done intentionally due to favoured employees being given an easier ride or due to more senior staff members not having the capacity to monitor compliance.

No transparency 

The manual, piecemeal and infrequent nature of spend management submissions means CFOs have poor visibility on how funds are being spent by their businesses. This limits their ability to optimise company spend (i.e. doubling down on marketing campaigns with a positive ROI).

Technology can take spend management to the next level

Effective spend management processes are critical for businesses to be able to meet their compliance and reporting requirements.

Defining and administering an expense policy is a great first step to take. In the second piece in our What is Spend Management guide we’ll explore how to use technology to deliver accurate and timely data to empower business growth.