A business’s success starts at the financial level. Business expenses add up, and each avenue of spending affects the available budget, which is why tracking and organizing spending is a crucial practice for any company.
Spend management programs can help businesses stay on top of their spending and devise solutions for a more effective budget in the long term. Spend management software can record spending in different areas and uncover patterns, equipping businesses with actionable next steps. Once companies know how much they’re actually spending and in what areas, they can more effectively allocate their funds, discover savings opportunities, and employ risk-management strategies.
What Is Spend Management?
Spend management is a business’s way of tracking and controlling how it spends money outside of employee costs. External spending with suppliers accounts for 40%-80% of a company’s costs, so it’s especially important for businesses to have accurate information on how much they spend and where their money is going.
Spend management begins with a business considering its product options and searching for supplies to buy. After creating a plan for which suppliers to use and what products or services to purchase from them, the business will make purchases and then assess what they’ve bought. The cycle progresses as the company evaluates whether to continue making similar purchases as planned or adapt its strategy to better suit its budget and business goals.
Software such as spend analytics tools allows businesses to automate their spending strategies so that sourcing and purchasing decisions work best for the bottom line and improve overall company efficiency. Intelligent spend management ensures businesses are doing everything possible to maximize their efforts and return on investment while decreasing costs, avoiding financial risks, and strengthening relationships with suppliers.
How Does Spend Management Benefit Supply Procurement?
Businesses operate by buying goods or services from other companies to use as supplies and to bolster their own products and services. Procurement of these goods and services happens when the business makes a purchase, but the procurement process also includes other steps, such as researching goods and services to buy, creating a spending plan, and considering the future viability of suppliers.
Spend management software programs look at a business’s procurement efforts to evaluate how well certain plans are working and where the enterprise can improve to see better savings opportunities and capitalize on sustainable strategies. From there, companies can clearly see where they can cut spending in certain areas, such as which suppliers they use and the volume of supplies they buy.
Procurement spend management also helps build resilient supply chains. By tracking how a business buys from a supplier, programs can generate a better understanding of the supply market and create recovery and mitigation strategies for risks like supply shortages and recalls. Spend management software can compare a business’s supply need with various available suppliers and devise a plan to avoid risks from only working with one supplier or one geographic region.
Spend analytics also allow for effective negotiation with suppliers. When a business’s financial history with a supplier is readily available, the company can present a fact-based approach to the supplier as a basis for further business deals. With spend management programs, enterprises can confidently invest in supplies and supplier relationships that will pay off.
How Can Businesses Use Spend Management Programs?
Routinely implementing a spend management process helps businesses avoid unnecessary spending and evaluate financial patterns to find potential areas to save money in the future. Once companies have a clear idea of how their spending affects their bottom line, they can evaluate which spending categories have the greatest impact and which they can cut back on.
A successful spend management strategy will help businesses decide the most accurate budgets for each of their expense categories, so they only spend money on what they need and can boost funding in areas that could benefit from it. Analytics also help organizations identify risks and opportunities so they can make the most of any economic situation.
Additionally, spend management software programs can track multiple spending lines at once. By combining the analytics from all of a business’s suppliers and spending categories into the same platform, companies can better analyze and control their budgets and discover ways to reduce costs.
What Are the Benefits?
Managing spending is a smart business practice for overall company financial health. In particular, spend management strategies positively impact businesses in ways such as:
- Creating space in the budget: Many budgets allocate more funds than necessary to certain spending areas. When businesses revamp their budgets to spend more effectively, analytics can help them quickly redistribute money where they need it more. Managing marketing spend, for instance, can free up as much as 20% of a marketing budget.
- Generating long-term efficiency: When a business knows which strategies work and which don’t, it can change its operations to intentionally implement only the successful plans to be more efficient far into the future.
- Providing transparency: Businesses often spend money in several directions, resulting in many moving parts to remember. Spend management software helps companies accurately track all spending avenues and includes every financial decision in its evaluations. Enterprises will always know exactly how much they’re spending on which products and services.
- Producing agility: Unexpected events can upend supply chains and interfere with steady business practices. Spend management programs allow for financial flexibility so businesses can efficiently redirect their spending to where they need it most during times of hardship or change.
- Cultivating financial awareness: Tracking expenses is a great business habit to practice. Ensuring smart spending can prevent organizations from overextending their finances while allowing them to use their available funds fully. Spend management puts businesses on track to achieve their financial goals realistically.
Choose Hydrogen for Financial Services Creation
If your business wants to help other companies create effective budgets or improve supplier relationships, Hydrogen wants to help you produce the best outcomes for you and your clients. We believe financial services should be accessible for all businesses to produce so that you’re equipped with the skills and knowledge you need to bring your clients to the next level.
Our team is dedicated to saving you time and money by offering a range of financial products and services, including virtual cards for business payments. If you want to expand the financial solutions your business offers to clients, Hydrogen’s platforms allow you to easily create the services you need. Sign up today to see how our advice can help you curate an effective spend management program!