Look after the spending and the budget will look after itself: Streamlining through spend management
It’s never been more important for businesses to keep an eye on day-to-day spending. At the moment, month-to-month inflation of goods and services might mean that realistic budgets set at the start of the year begin to strain. Additionally, companies that currently rely on their staff to pay and then claim expenses may discover that employees can no longer afford to be regularly out of pocket during a cost of living crisis. Their goodwill may run out and have an even greater impact on overall business operations. Therefore the automation of company spending is now more necessary than ever.
When it comes to managing spend in a business, the budgeting process can set a high level of accountability. This drives headcount forecasts, subscription-based spend, and key projects throughout the year. But when we start getting into ongoing spend control specifically - which comes after the budget has been set - controls need to happen slightly differently, as businesses need a way to proactively control spend as it occurs.
Setting a spending policy
Normally, when you ask businesses how they want to control spend, their ideal scenario is to implement the pre-approval of any company spend that takes place, or to set specific spending policies. For example, companies will typically have a travel policy that may include rules such as; you must take an economy class flight, it has to be booked X number of days in advance, and a hotel cannot be more than £120 per night. Or if on a business trip, can only spend £50 per day on subsistence.
This is where enforcement and accountability are paramount: you’re trying to control spend at the source. The little things - transaction by transaction - ensure that you don't breach the high-level budget in the future.
Businesses can set policy and encourage compliance, but unless it’s straightforward for their employees to apply at the point of purchase, then they might not stick to it. If a policy is unclear, held in a document difficult to access, or even simply out of mind, at any instance a purchase is made, then it’s not worth setting out in the first place.
Automatic enforcement of spending policy
One straightforward way to enforce spending rules is to set specific company card policies. When you give employees company cards, you can determine what can be done on each individual or team card and set the type of spending it allows. This is where you can set rules such as ‘no ATM withdrawals’, thereby eliminating cash from the business; or conversely ‘no online payments’, which has the immediate effect of reducing the risk of fraud from the business according to its needs. You can also set different policies by their user groups, for example setting up a ‘travelling employees group’ with a higher card limit, and a ‘non-travelling employees group’, who receive a lower limit.
Another approach that can be applied by the finance or procurement teams, when using some spend management solutions, is a zero-limit policy card. This is where you give all team members a card but it has zero funds attached, meaning it can only be used via a process of fund requests. You can of course set pre-approvals for fund requests up to a given limit, which can then be used for specific one-off purchases. There is even the potential functionality to set specific limits by time of day, or day of the week, and different limits by merchant category.
These are all ways and means of setting spend rules, and typically this is used for spending that is low-value but high volume, enabling systemic control, as opposed to a one-off approvals process. Typically, when it comes to high value items, this would go through a purchase order, rather than a card expense or reimbursement. However, the inflexibility of the PO process may mean it is easier to manage certain types of spend through company cards - including travel and expenses and subscriptions.
Identifying spend outside of policy
No matter how strong and well-implemented your policy is, there will inevitably be times when someone breaks it. It's therefore vital to have good spend visibility, so the finance team can see what has happened and take action, whether by updating policies or reaching out to the cardholder directly.
This is when you want to be able to filter by transaction, and combine these filters to create exception reports. It’s typically mandatory for employees to assign the category of an expense e.g. ‘hotels’. Therefore you could filter the category by ‘hotels’, then apply a second filter where the amount is ‘over £120’, and add any additional filters to combine the number of nights, times the max spend per night. This would identify all transactions above the policy threshold, effectively identifying all out of policy items quickly and enable the finance team to go into it for further investigation.
This kind of visibility is typically given to the finance team, or team managers - the direct approvers of expenses - however they tend to do this on an approval by approval basis. The challenge here is to inform and educate them on the policy, rather than building the reports.
Achieving a 360° view
A lot of company spend rules are enforced in policy but this doesn’t ensure compliance. This is where spend management software can proactively ensure compliance, with policies built into the company cards and associated software, using advance card limits, different user groups and different spend types, which all allow for greater control enforcement. This all has the effect of making it super easy for cardholders to stay in policy, reducing the number of errant transactions, and making it easier for the finance team to identify when they occur.
