Robert Kugel's Analyst Perspectives

The term "corporate spend" usually refers to the incidental but still significant outlays organizations make to support operations. Especially in nonmanufacturing industries, purchases of indirect goods and business services – such as computers, office supplies, furniture and services – as well as travel and entertainment can represent a significant percentage of total costs. Technology has evolved to the point where executives – especially the chief financial officer – need to take an overarching approach to corporate spend that utilizes technology to tighten controls, deepen visibility into expenditures, increase productivity and reduce process frictions. Spend management software and corporate spend cards – either physical or virtual – offer a means of achieving spend management objectives. This is part of a broader trend to digitizing outlays: I assert that by 2025, more than two-thirds of organizations will be using spend management software and corporate cards to achieve greater control and increased efficiency.

Well-controlled organizations have rules about how and for what money can be spent, and spend management software can enhance these controls while providing deeper visibility into where, how and why the outlays were made. This can translate into cutting unnecessary spending and reducing out-of-policy purchases (such as using unapproved vendors and foregoing negotiated volume discounts). Spend management software that automates the full procure-to-pay process can make it easier for workers to comply with policies and reduce wasteful spending while providing greater visibility and control compared to relying on fragmented systems and processes. Having a unified system for expense management and financials can improve finance department efficiency by cutting the time the accounts payable department spends on paper- and spreadsheet-based processes.

Dedicated software can also improve accounting department efficiency and reduce administrative burdens for workers. Managers, workers and finance and accounting departments can wind up devoting a considerable amount of time managing and controlling expenses – especially travel and worker spend – unless they use software to streamline the process. They also need to be able to access the current state of their corporate spend wherever they are, receive timely alerts when situations needing their attention arise, and have the ability to dig into the details of every transaction for clarity and control.

Corporate cards have evolved over the past decade, offering more flexibility and efficiency in how organizations effect payments. Physical cards can be programmed to limit purchases to specific categories, apply per-diem caps or be suspended when the worker fails to comply with policies, including providing valid receipts. Virtual cards can have pre-approvals baked in, and are well-suited for one-time or recurring payments. Some can be established for a specific event such as a trade show or marketing program. Increasingly, auto-categorization makes it possible to immediately classify expenditures and, along with paperless receipt submission, cut down on time spent by the accounting staff and accelerate the accounting close.

One of the most important considerations in buying and selecting a dedicated spend management application is gauging its ability to deliver timely spend information. Details can be accessed promptly through reports or preconfigured dashboards, addressing a common issue for organizations. Timeliness is a common challenge for finance organizations. One of the root causes that drives delays in getting actionable information to managers and executives is fragmented data – data that’s kept in spreadsheets and multiple enterprise systems. A dedicated spend management application automates processes and ensures that all spend-related data is immediately and readily accessible.

This accessibility is greater when an organization uses a single system to operate alongside the organization’s financial software. A single system can simplify management and use of expense data that may be scattered and inconsistent, while eliminating manual processing that is both error-prone and time-consuming. When all corporate spend data is collected in a single system, it is immediately available for all authorized users, which means information is available in a timely manner.

Spend management software also makes it easier for workers to comply with policies, and can reduce duplicate or wasteful spending. The emergence of cloud-resident systems makes this process more efficient, as users in any location can access them through web browsers. Purchasing applications facilitate compliance to the organization’s policies by providing all necessary supplier information, including preferred suppliers, supplier catalogs and contract history. This kind of software can substantially reduce maverick spending by concentrating purchases with preferred vendors. And it can help achieve cost savings, especially if the organization has negotiated volume discounts. Centralizing indirect procurement in one application that records all purchases makes it easier to hold suppliers accountable to volume discount agreements. Automating the procurement process helps those in the accounting department and workers in general. For the latter, dedicated software can cut the time they must spend in specifying and requisitioning. Streamlining the process can reduce the hassles associated with paper-based systems and therefore promote compliance with purchasing rules. Systems with mobile device interfaces can simplify the buying process and facilitate administration of it by allowing people to review and approve requests even when they aren’t at their desks. As is the case with expense management, the finance department benefits from automating procurement by having more accurate data as well as better visibility and control of these outlays. For government, education and nonprofit organizations that must segregate funds for specific purposes, it’s possible to check automatically that there are funds available before approving purchases. Cloud-resident spend management systems are preferable because, from a worker’s perspective, they make processes more efficient and user-friendly. Users can access their system through web browsers from anywhere.

Travel and entertainment expense systems in particular should make life easier for workers to collect and provide itemized documentation for their outlays, and simplify the job of the accounts payable staff in handling reimbursements. Current travel and entertainment software uses technology to reduce the time it takes workers to gather and present receipts as well as the time they spend preparing itemized accounting. These systems can integrate with online credit card accounts that enable workers to drag and drop specific expenses from those accounts into an expense report. This software also offers mobile capabilities that enable workers to process reports on the go. Cameras in smartphones simplify the collection of receipts by “attaching” a picture of them to the electronic expense reports, and optical character recognition of these images can further automate data entry. Many systems also allow organizations to tailor procedures to reflect local requirements, specific expense allowances and per-diem rates to simplify compliance. In addition, the use of cloud computing makes expense management easier to access and use by those who work remotely or travel, thus increasing productivity. Professional services organizations especially benefit because it becomes faster and easier to submit accurate, reimbursable expenses to clients.

Spend management software, especially when used with corporate cards, should be a priority for finance executives. This digitization of an important finance function increases spending control, reduces out-of-compliance spending, fosters greater efficiency for the accounting staff, increases spend visibility and reduces administrative burdens on workers. I recommend that all organizations, regardless of size, immediately look into software that’s best suited for business needs.

Regards,

Robert Kugel