How to reduce spending waste with tail spend management

Are you victim to the hidden profit drain in every growing business – tail spend? A budgetary black hole that hoovers up company money day after day on a never-ending basis.

In this guide, you’ll learn how to get visibility and control over tail spend.

But with so many spend management platforms on the market – all promising to help take your finances to previously undreamt of heights – how do you choose the right one?

Here’s a deep dive into what makes a spend management platform great and the things you should consider before buying one.

What is tail spend?

Tail spend refers to any spending beyond the usual ongoing and large purchases your organisation makes. It can often be problematic to track.

The source of this problem is fairly innocuous. Its roots lie in a typical business activity: employee spending. Every day, your people spend money on products and services they believe are critical to business operations.

We refer to this type of spending as tail spend, as it takes many forms – office supplies, events, software subscriptions, flights. All of these purchases have two things in common: they’re tactical, and they’re made at the discretion of the individual.

None of this spending is a problem, in and of itself. After all, some, or even most, of these products and services will be required to keep operations running smoothly.

But here’s the issue: as you grow, it becomes increasingly difficult to deal with the admin of tail spend management. When people are focused on growth they tend to ignore spending policies. It also becomes a lot more difficult for finance to enforce these rules – there are just too many people spending money.

At the same time, tried-and-tested expense and spend management tools can quickly become more of a hindrance than a help. This tail spend can pose a serious issue for dynamic businesses.

When you can’t see what you’re spending, a certain amount of profit will be draining out of your business in the form of repeat or rogue spending.

And lost profits are only part of the problem here. The harder you try to track all of this tail spend, the more admin you have to take on. And this admin can swell to ridiculous proportions – we spoke to one business that was losing 10 days per month on tail spend management and reconciliation.

The problem of tail spend

Tail spend can be divided into two very broad categories:

• Expenses: predominantly travel and entertainment (T&E)
• Role-based spending: specific spending related to a job

T&E spending is a well-documented expense category that refers to expenses incurred when employees travel for business or entertain a business client. Examples of travelling expenses include money spent on hotel bookings, car hire, meals or flights.

Role-based spending is a more insidious threat. It incorporates a huge amount of spending that’s spread across the business. Event signage, freelance talent, marketing collateral, software subscriptions and digital advertising all fall under this umbrella. This spending is incredibly hard to predict and manage, which makes it very difficult to track and control.

Why traditional spend management tools fail

Tail spend isn’t a new phenomenon and there are dozens of solutions out there that claim to address it. Most finance professionals manage this using a mix of corporate credit cards, cash advances, employee reimbursements and procurement systems.

The problem is that all of these systems have their limitations.

The problem with corporate credit cards

Corporate credit cards are designed for a specific job – enabling senior employees to make regular low-value payments on behalf of the business.

The problem is they end up being shared between multiple team members who use them to buy everything from ad space to fuel. This makes tail spend management and reconciliation a total nightmare as someone has to manually join the dots between bank statements and real-world purchases.

The problem with cash advances

Cash advances present a slightly different problem. You can empower almost anyone to spend – from interns up to executives – but you can’t empower groups of people, like departments or company cards.

It’s just too dangerous to distribute big chunks of cash to large groups of people, and it creates an insurmountable amount of admin.

The problem with traditional procurement processes

Traditional procurement processes can be helpful – they give you granular visibility into spending – but they’re best used to automate the approval process for predictable, long-term, contracted purchases.

They also lack the agility to respond to urgent spending needs. They’re great if you’re paying a supplier for raw materials every month. Not so great if Marketing needs to pay for an event that’s happening in five days.

The problem with employee reimbursements

Employee reimbursements create a similar problem. You can empower junior employees to spend small but you have to wade through a significant amount of admin to get any sort of visibility and control.

There’s a theme here. All of these tools let you control and track spend to some extent but, more often than not, you have to wade through a huge amount of manual, time-consuming admin just to gain a limited insight into spending – especially tail spend.

Businesses we speak to spend up to 30 days building spending reports before getting stuck into the tedious reconciliation process.

Even then, they have to plug everything into their accounting software to get a complete and accurate view of spending.

And all of this admin is bad for business. It means you’re always looking backwards at what’s been spent in the past. Your business could be losing money right now and you wouldn’t know about it. And even if you did know, you couldn’t do anything about it.

It’s time for a new approach to tail spend management

Using a spend management tool lets you gain complete, real-time control over tail spending within your business.

It lets you do four things:

1. Empower employees and departments to spend on your company’s behalf.
2. Give finance teams ultimate control over company spend, both before and after payment.
3. Gain complete and instant visibility over company funds and spend at an individual, department and company-wide level.
4. Optimise the reconciliation and accounting processes, while maximising the efficiency of existing software.

You may be able to tackle some of these tasks with long-standing spend management tools, but no traditional system can tackle all four.

Mind the spend management gap

For example, Plymouth College of Art’s Finance Director was juggling a whopping 70 corporate credit cards. This made reconciliation a tedious, time-consuming nightmare.

Soldo’s spend management solution addresses the root cause of spending sprawl – the spend management gap, that yawning divide between legacy finance systems and real-world spending.

Think about tail spend within your business for a second. Someone makes a purchase using one of the tools mentioned earlier and this creates data – but this information is rarely captured immediately. It’s fed back to a card company or it’s logged in a siloed system where it may or may not be picked up at a later date.

To cross this divide you need to connect the means to spend – cards – with the software you need to track spending.

A Spend Management platform is a toolkit that includes everything you need to balance employee empowerment with visibility and control.

Our platform includes four components:

• A cloud-based administration console that gives you a real-time view across spending
• A multi-user spending account so you can manage all spending through one system
• A mobile app so that users can log receipts and track their own spending on behalf of the company
• Physical or virtual prepaid cards so your people can make payments

Together these components create all-new possibilities.

Create a complete view of all tail spending

Having only one multi-user account means you can get a complete view of tail spending, without having to aggregate data from silos. And you can dig into this data in numerous different ways.

Want to create an in-depth report on year-on-year business-wide spending? No problem.

Want to track a specific individual’s spending in real-time? The data’s at your fingertips.

Act on data in real time

Once you have a real-time view of spending, you need a way of acting on this data. One way to do this is to map your spend management policy to our admin console. That way, rules will be applied across your business.

But you can also apply controls at a departmental or individual level. If you spot something suspicious, you can home in on it immediately.

Finally, you can apply controls to specific purchase streams. So if fuel is a big tail spend expense for your business, you can create an account specifically for that.

Simplifying tail spend

Once you’ve set robust controls, you want to make it as easy as possible for your employees to spend.

Our virtual and physical prepaid cards replace credit cards and users can track all their spending through our app, in real time.

They can also add context to purchases with tags and notes, and send photos of receipts directly to accounting systems.

This is a win-win situation. Your people can spend quickly and easily, and you get the data you need to fast-track reconciliation and make critical decisions around tail spend management.

Move data with ease

Our platform’s reach extends beyond our ecosystem.

It can be integrated with all of your finance and resource management systems – accounting tools, ERP systems and procurement platforms – so tail spend data can be ported quickly and easily.

This simplifies reconciliation – big time. There’s no need to juggle data between disconnected tools and spreadsheets.

The big reason our prepaid cards are different

The problem with most prepaid cards, and the tools that support them, is that they lock data into silos. You can see what you’ve spent on one card, or in one account, but you can’t get a centralised, business-wide view of spending without aggregating data manually.

That means you still have a serious admin burden for tail spend management, and you don’t get that all-important real-time view.

We do offer prepaid cards, but they’re a means to an end – a way of facilitating spending. The real magic happens in our administration console.

Spend management platform in action

By bridging the gap between real-life spending and your financial infrastructure, you can do things you could never do before.

Create better budgets

Budgeting is often educated guesswork informed by the people who will be spending the money. Spend management tools give you more control.

When you can see exactly how much is being spent at a departmental level you can hold department heads to account and tighten bloated budgets.

For example, when you can see that Sales repeatedly overspends on food and drink compared to every other department, you can make the case for a reduced entertainment budget.

This sounds like a small gain, but even minor changes to departmental behaviour can ladder up to huge savings.

Make savings

Tightening budgets isn’t the only way to make savings. As soon as you get full visibility into tail spending you’ll notice instances of unnecessary and repeat purchases, and maybe even rogue spending, at an individual level.

Our platform gives you the tools you need to nip this in the bud and release resources. Then you can redeploy money where it can make an actual difference.

Improve forecasting

Total, real-time visibility into spending can also help you improve your forecasting. Benchmarks become more reliable as they’re based on accurate, historic data and you can tweak predictions on a daily basis based on new, up-to-the-minute information.

This just isn’t possible with traditional tail spend management processes. It’s too difficult to build an accurate view of spending, and by the time you do achieve clarity, your business has moved on.

Make better decisions

Spending data is essentially behaviour data and can reveal a lot about your business and the processes you rely on. For example, if you can see that you’re spending £45K a year on event collateral, maybe it’s time you set aside an events budget.

This tail spend data may inspire small changes, but it can also inform big strategic decisions. Building a business case for a huge digital transformation program? Spend data can help you highlight the real cost of your creaking legacy systems.

This is an all-new data point that can help you refine your thinking and make better, more informed decisions.

Enhance services

Tracking your own tail spending is one thing, but tracking client spending is another. Often, you have to do a load of manual admin just to create a fairly shallow ROI report.

This is a particularly irritating issue when you’re managing media spending. You may be employing dozens of people spending tens of thousands on behalf of a client – that’s a lot of admin for your business to swallow.

A spend management platform solves this problem but it also creates a new opportunity. Now you can give your clients real-time data on media performance. Once they can tie spending to results, they can optimise campaigns and refine budgets on the fly.

You’re killing two birds with one stone here – enhancing a key service and reducing your team’s workload.

Turbocharge your team

You’ll always need to do some kind of reporting on tail spend, but a spend management platform lets you reduce admin to a strict minimum. And this can have a huge impact on your business.

Reconciliation is almost always a job for senior people but it’s also a drain on the people making expenses. Remove this time-consuming task from the agenda and everyone can reinvest their time in more high-value work.

Balancing agility and control

Tail spend is a fact of life. It’s necessary and can’t be avoided.

But that doesn’t mean it’s a bad thing.

It can become a problem if you avoid or ignore it, but it can also be a source of opportunity. You just have to harness it.

This opportunity can take many forms – efficiency gains, improved agility, smarter processes and business insights. But the biggest gain is, without doubt, improved margins. If you aren’t tracking tail spending, or if you’re tracking it with ineffective tail spend management processes, profits will be draining out of your organisation.

Soldo’s new spend management system is optimised to solve this problem.

You don’t clamp down on the business or restrict your people. You empower them to spend and self-regulate.

And when there is a problem, you can act fast and incisively to nip problem tail spending in the bud. This is how you manage spending sprawl – not with a vice but with a conductor’s baton.

Discover how Soldo can help you to get control over your tail spend management, and empower all of your employees to spend.