What is Spend Management?

Spend Management is a procurement function within an organization, and it involves managing how an organization spends money to most cost-effectively obtain the desired products and services. Spend Management often includes the processes of supplier outsourcing, procurement, and supply chain management. It also encompasses the analysis of supplier spending to understand current buying trends and behaviors and inform future purchasing decisions. A spend manager must understand all aspects of an organization’s spending habits and use such knowledge to negotiate terms with suppliers.

Consider the key business functions that spend management affects.

Accounts Payable

Sourcing

Supplier Management

Procurement

eAuction

eTender

Common challenges within manual spend management processes

Sticking with outdated manual spend management methods can create challenges for a company's AP department, influencing its bottom line. Please take note of the following problems that stalk businesses that don’t figure out ways to streamline their processes with reliable software solutions.

Lack of visibility

One challenge that financial professionals face is a need for more visibility into a company's day-to-day spending.

A company generates a lot of data with every transaction. But if they are using inefficient paper methods to record each step of their procurement-to-payment process, they will need a detailed way to examine this data.

This can lead to maverick spending, duplicate payments, or other costly errors.

Poor data capture

Trying to manage to spend on paper leads to poor data capture. An AP department must be able to review past procurement data easily, oversee current spending, and forecast future growth to make informed purchasing decisions.

However, manual processes make it difficult to access data from these three sources simultaneously. Key performance indicators and other analytics must be tracked and calculated by hand, which takes up valuable time and usually needs to be completed.

Inefficient manual processes

Often companies that rely on paper handling must perform manual data entry multiple times into separate financial systems at different stages of the procurement and payment processes.

This leads to additional opportunities for entry errors to creep into the process. Manual processes also create bottlenecks when payments must be individually verified and authorized by inefficient routing to administrators.

Compliance

Audits of financial records become a huge pain point when AP professionals are faced with rows of filing cabinets.

Verifying procurements becomes a painstaking process where accounts payable staffers must match requisition requests to receipts of goods and invoices.

Supplier management

Many businesses have found it necessary to rethink how they spend their money. According to Chrome River, 49% of businesses reviewed their supplier terms in one recent year of the COVID-19 pandemic.

With competition taking positive action to address their issues, a failure to maintain a robust supplier management software solution puts partner data out of reach. It leaves it open to needing to be updated.

On the other hand, a software package that holds vendor information in one portal keeps contact and contract data fresh and actionable.

Budget optimization

Businesses that try to maintain outdated spending management end up with inefficient budgetary processes.

Often budgets are decided based on best guesses or the previous year's cycle rather than real-time data.

Benefits of spend management software

According to Expert Market Research, the global business spend management software market will grow by 10% during the next five years. This growth is to decrease supply chain risk and optimize and automate processes to streamline business operations. Consider some of the benefits that come to a company that embraces reliable and efficient spend management software to streamline their business offices.

man holding clock line art

Time and cost savings

Every business needs to pay attention to its bottom line. Streamlining spending with automated software is one way to do this.

By their nature, manual processes are more time-consuming and costly. They require more human intervention, which also introduces opportunities for human error or outright fraud, which costs businesses billions each year.

Better compliance

Software that brings every step of procurement, vendor management, and supplier payments under one system creates a better method of record-keeping than endless rows of file cabinets.

Documents can be linked so that every part of a transaction is readily available with a button.

Historical transactions for one vendor can be consulted easily to view performance over time. This may lead to more favorable contract terms at the time of negotiation.

female giving thumbs up line art

Better supplier management

Companies are not islands; they often rely on suppliers and vendors to provide raw materials and other products that add to the complexity of the supply chain.

Suppliers, especially small business partners, often need to be paid quickly to maintain their ability to perform.

When a business takes steps to implement AP software that supports spend Management, it can lower its procure-to-pay time.

This may open the doors to more vendors willing to conduct business, drive down prices, and improve vendor relationships.

Streamlined procurement process

Every step in the procurement process has the potential for a streamlined activity or inefficient handling. Software that automatically matches incoming invoices to previous requests and products or services received will create a smooth workflow that optimizes the AP team.

female working at computer line art

Creating a spend management strategy

The spend management strategy is acquiring, organizing, managing, classifying, and analyzing spending information to lower procurement expenses and maximize productivity.

A good spending management strategy will also address workflows and compliance concerns so that the business always remains in control of its finances.

Spend management software is a key component of spending strategy, but other important considerations exist.

A business should start with an evaluation of its current workflows. What steps are involved in its specific processes? What factors create slowdowns or inefficiencies?

Each step of the procurement process can be reviewed and prioritized individually to identify what improvements will positively affect the company.

Baseline performance regarding time, cost, and manual user input should be recorded so that a comparison can be made against any solutions implemented.

Next, a company must research the best software solution and other strategy tools to address the most significant factors limiting workflow.

After implementation, all business spending processes should be reviewed to visualize the gains received fully.

Frequently asked questions about spend management

Spend management software helps companies manage compliance because business data becomes easily accessible and retrievable.

Paper forms and invoices are digitized, and the data becomes part of the collective warehouse of actionable information rather than stale numbers.

In addition, compliance officers and auditors can more readily see different documents related to one transaction rather than being forced to hunt for separate pages scattered across many systems.

Modern spend management software can integrate with existing enterprise resource planning (ERP) systems.

For example, Medius solves this issue with Medius Connect, which provides pre-packaged and fully-managed connectors to popular ERP solutions.

Custom integrations can be made using REST APIs so that every software integrates, making data more useful.

Implementation time for spend management software can take as little as a few months to up to a year. Factors that affect implementation time are the scale of the project and what processes must be integrated.

The key to a smooth transition has a well-designed and managed process. Many companies implement software in pieces to implement individual procurement steps one at a time.

This may cause less disruption and greater buy-in from AP staff tasked with learning new work methods.

Spend management software can help organizations of any size – large or small. A key feature of a good software solution is that it can grow with your company and scale to meet your growing demand.

Often a business will have several sources of data – historical paper records, an ERP system, procurement portals, online auction sites, invoicing systems, etc.

Spend management software can take these disparate systems and bring them to one pane of glass. Analytics engines further the usefulness of this data so that dashboards display financial statistics and key metrics in real-time.

This means a company can make decisions with fresh data instead of offering best guesses.

Yes, quality spending management software supports supplier management functions. Suppliers and vendors form a crucial part of a business’s strategy.

For example, a self-administered partner portal can be provided so that supply partners can update their information regularly. Contract data, product catalogs, and invoice transmission all happen from one interface.

This lowers costs for both parties, fosters better communication, and improves company relations.

Spend management software works to remove the manual steps that lower productivity and increase efficiency.

Labor-intensive steps that can be automated allow staff members to perform other vital functions and remove the likelihood of costly data entry errors or processing problems.

Software solutions are more scalable, so they grow with the company over time without additional staff needing to cover the increased workload.

Spend management software is often customizable to the needs of a company, and Medius addresses this by providing modular solutions that work together or independently.

This allows a company to target the most important steps in its procurement and invoicing strategy.

Invoice processing is historically labor-intensive, and it often involves entering data into multiple systems for storing, approving, and paying invoices.

With AI-driven data capture and automated checking against previous orders and requisitions, a quality spend management system will reduce clerical errors common to human-led processes.

See how Medius can help streamline your spend management.

Book a Demo Contact Us