As a business owner, you should always keep track of your company’s spending. You should know when, where, why, and how much you’re spending, and who’s making purchases. If not, you can quickly lose sight of your costs.
Spend management is the way your company tracks, controls, and analyzes business costs and spending. It attempts to maximize business spending while decreasing costs, increasing relationships with suppliers, and lowering financial risks. By using programs, or other preferred accounting mediums, you can gain a better understanding of where your money is being spent, how much is being spent, and how you can minimize these costs.
Spend management solutions vary by programs and preferred mediums, but the overall goal remains the same. These methods all help to keep a record of your spending and ensure that all money going out and coming in is properly documented with no discrepancies.
The Evolution of Spend Management
Spend management is not a new concept. The name is recent, but the premise has existed for decades. The only aspect of spend management that has changed significantly over the years is how it is recorded. Over time, companies have continuously found new and more effective methods to keep track of their company spending.
Not long ago, ledgers and other paper documentation were popular methods for recording. Employees would transcribe each sale that was made and where the money went. They tracked each number, did the necessary math, and assessed the status of their business finances. Unfortunately, ledgers could be easily misplaced, damaged, or altered. They were unreliable, and human errors were likely to occur.
Once the invention of computers came along and people began producing programs that could help with spend management tracking, companies transitioned to using spreadsheets. These could be produced infinitely and programmed to do the math automatically. They also offered easier access to previous records. Spreadsheets made managing finances easier and more reliable, and some companies continue to use them.
As the world becomes ever more connected and businesses have further reach than they did in the past, manually recording every expense and transaction isn’t as feasible as it might have once been. Manual entry is less reliable, and it costs more time, effort, and money.
Today, companies and developers are transitioning to a more automated approach to spend management. Rather than relying on a person to input all sales and transactions, an artificial intelligence program records and processes all the spend management information. With this approach, businesses are better able to track spending and reduce the number of mistakes.
Six Ways to Overcome Common Challenges With Spend Management
Spend management is not a perfect system. Even with the most diligent and focused employees, mistakes are inevitable and issues will arise from time to time.
Many companies these days allow employees to spend money as necessary to complete designated tasks. There is a constant outflow and intake of money, and you must have a capable team that can manage and document spending as efficiently as possible.
To help limit the errors that may occur, we’ve compiled a list of six ways to overcome common challenges in spend management.
1. Ensuring Employee Alignment With Company Spend Policies
One of the biggest issues that can occur with spend management is a disconnect between policies and employees’ understanding of them. Employees may be under one impression of how money can or should be spent, while the financing department has a different view. Unclear policies and miscommunication can result in improper spending.
Adjusting your policies and setting clear expectations is the best way to alleviate this issue.
2. Reducing Unexpected Employee Spending
Shared corporate cards can work well when you need to give your employees access to business funds. They reduce the steps needed to make required purchases and limit the people involved. Unfortunately, having a shared fund can result in some confusion about who is making purchases. When the funds are withdrawn, you can only see how much is being spent with statements and other documentation without a clear trail on who made the spending.
The best solution would be to establish links between employees and spending. When you always know who’s making purchases, you can hold your employees more accountable for their spending and limit unexpected expenses.
3. Eliminating Guesswork in Accounting
Situations inevitably arise where an employee misplaces a receipt or forgets to obtain one. This scenario leaves the financing team with the difficult task of locating the sales receipts and inferring the necessary information without definitive facts. They have to rely on other employees to provide the necessary information or verify the legitimacy of their spending.
Even with the necessary information, the proper documentation needed comes at a slow pace. Receipts and credit card statements can take days or weeks to appear. The only solution your financing team has is making an educated guess.
Guesswork might be a common practice with spend management, but it can quickly lead to discrepancies. Bank statements show how much money is leaving the company, but without receipts, you have no evidence of what was purchased — only the amount spent and where.
Automation is one method you can implement to help reduce the stress and limitations of guesswork. It allows your financing team to spend more time making financial decisions and less time on spend management and analysis.
4. Improving Transparency
In most situations, financing teams don’t receive the purchasing reports until the end of the month with the monthly credit card statements. Without knowing exactly how much money employees are spending, financing is unable to deliver accurate reports about company spending. They become more reactive in their monthly response rather than proactive.
Financing needs to have access to all records at all times so they can make more accurate decisions and react appropriately to the spent money. They should be aware of what employees are purchasing so they can limit duplicate spending and other common issues. Employees with purchasing power should also have access to records so they can keep track of how much they’ve spent and what funds are still available.
By finding ways to allow your financing teams and employees to view current spending, you can promote better spending practices for the future.
5. Encouraging Employees to Spend as Needed
While unnecessary spending is far from ideal, you want your employees to be able to accomplish their jobs to the full extent. Empower them to make purchases as needed rather than slowing operations down by asking permission every time. Similarly, you should give your financing team leeway on making strategic and analytical decisions.
When you implement new ideas and systems into your company, you should always look at the ways they will benefit your employees. You should always give them the tools, equipment, and spending that they need to thrive within the company.
6. Removing Manual Spend Management Tracking
At many companies, the financial staff spends hours each day manually entering data into charts, communicating with other staff about spending, transferring data across different departments, and correcting any discrepancies that arise. This manual work takes time away from other important tasks.
By automating your systems, you can reduce the amount of tedious and time-consuming tasks that your financing department is responsible for. You want a system that helps your financing team members and connects them with other departments.
Virtual Cards and Spend Management
Despite their popularity, the use of credit cards, cash, and personal debit cards can be problematic when it comes to spend management. Consider upgrading your system to something more reliable and beneficial.
Virtual cards eliminate many of the challenges that come with other common spending methods. They’re tied to specific employees, so you can easily keep track of who’s spending money, and on what. They make it easier for employees to spend as needed, and you can add spending controls to prevent unnecessary expenses.
How Hydrogen Cards Help With Spend Management
Since virtual cards are still fairly new to the spend management market, knowing where to begin can be a challenge. Hydrogen’s platform offers the tools necessary to take your company into the next evolution of spend management. Whether using virtual cards for business purchases or giving each employee their own virtual card powered by Hydrogen, you can now use a more accurate and secure way to keep track of business spending.
Sign up today and see how Hydrogen can help your company with spend management.