2 min read
Spend management allows companies to see where they’re currently spending and the areas they should be spending. It therefore comprises a number of important business operations and is crucial to good business practice.
In this post, we’ll define spend management in more depth and take you through some of the key benefits it can offer your business.
What is spend management?
Spend management is a set of strategies companies use to inform spending decisions, with a goal to improve efficiency and generate maximum profit.
The spend management process involves maximising value in return for company spend, while minimising costs and managing financial risk. In other words, it's about reducing costs and maximising value for money.
Spend management typically comprises spend analysis, sourcing strategy and supplier-buyer relationship management. When it comes to procurement, spend management is the only element businesses can control, making it vital to operations.
Spend management software is often utilised by businesses to help inform their spending strategy and maintain spend visibility.
Spend management benefits
Having an efficient spend management system in place can be hugely advantageous to businesses. Some of these spend management benefits are detailed below:
1. Optimises purchasing
Through spend analysis, businesses can make smart, informed decisions about which processes they need to work on. For example, spending analysis may reveal that money is being lost through duplicate payments on account of inaccurate and disorganised invoice processing. Action can then be taken to address this issue and avoid it being an area where money is lost in future. It therefore plays a huge role in optimising purchasing as a whole.
2. Can reveal opportunities for savings
Similarly, spend management analysis can identify areas where money can be saved, for example through negotiating with suppliers, or cutting down on inventory which sells poorly in certain seasons.
3. Better positioned to negotiate with suppliers
Spend analysis equips you with data that shows how much you spend with each supplier. You can use the data you have on your spending with competitor suppliers to see if you can get yourself a better deal with your primary and secondary suppliers.
4. Can minimise risk
Spend analysis data may reveal that you are too reliant on a single supplier. This is a risky situation to be in, as your business will be negatively affected should that supplier decide to cancel the contract, or out of nowhere fail to provide the goods you require. Being aware of this through spend analysis, however, gives you the opportunity to minimise risk by working with a range of suppliers. This will protect you in the case that one is unable to fulfil their contract, or decides to cancel it.
5. Impacts efficiency
Spend management involves the keen assessment of each stage of the purchasing process. It therefore forces spending teams to reflect on how to maximise efficiency. Essentially, it makes the decision-making process more analytical and risk-averse, rather than impulsive. This often leads to better decisions overall and more revenue.
A good example of this is when it comes to purchasing new technologies. While software and other technology can often be great investments for businesses, it can occasionally be a waste of money if the technologies are not truly needed. Good spend management practices will help ensure these kinds of purchases are only made if they will in fact improve efficiency in a company.
Spend management software
Investing in spend management software can reduce the time and effort involved in carrying out spend management activities, as well as offering superior risk management and improved spend visibility. Below are some of the best business spend management software solutions available:
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