As businesses usher in a new year, the uncertain economic climate has dampened some of the enthusiasm that spurred the first months of the post-pandemic recovery.
While efforts to streamline the business often focus on cutting resources like budgets and headcount, organisations should also shine a light on what is typically a blind spot – rogue spending.
Avenue for potential savings
Rogue spending involves expenditures that are unexpected, unpredictable, unorthodox or even fraudulent. They could be purchases made outside agreed supplier contracts that ignore procurement processes. Examples include a software license made for personal use, as well as corporate gifts bought for personal use or even for resale to third parties.
Such rogue spending often is not actively managed and constitutes 5 to 10 per cent of a business’ total spend, according to Spend Matters, a procurement and supply chain website. However, it typically involves 85% to 90% of the business’ suppliers. Businesses with less mature procurement organizations can expect this figure to be even higher.
To curb rogue spending, businesses need to rethink how the accounts payable (AP) process can be improved. Automating the AP process, for instance, can help untangle some of the difficulties that finance teams face now when identifying and uncovering rogue spending.
An automated process will include several components that should be common for most businesses – a purchase order (PO) is first requested and issued for an approved supplier, then an invoice that is tied to the PO is received, and finally, the payment is approved and made to the supplier as the work is completed, subject to the payment terms.
All this should be conducted in a digital system, with workflows built in to ensure that approving parties can check the details when needed before processing payment.
Today, many businesses still rely on manual invoice processing, for example, using e-mails to gain approval for payment, and using Excel spreadsheets to keep track of the progress of each payment. This takes up valuable time for finance teams while exposing firms to human error.
Even while enterprise resource planning (ERP) systems have been improving over the years to make the procurement and payment processes more seamless, much rogue spending or unexpected expenditure still slips through the cracks.
Automate for greater efficiency, visibility and compliance
To overcome this, businesses should consider spend management solutions that help to automate many of the processes that an AP team has to manage frequently. Not only will AP automation reduce the number of human errors from manual input, it will also improve the transparency of the process to managers. By having greater efficiency, visibility and control, organisations are better equipped to meet compliance requirements and mitigate fraud risks.
Data gleaned from the automated process delivers another benefit – more facts to draw on when negotiating with suppliers for an improved agreement in future. Reports and dashboards, for example, are able to show which are the top vendors by spend and the amount of time needed for each invoicing cycle.
To be sure, there is no single answer to the challenges facing every business. Companies may be of different maturity when it comes to spend management, or at varying stages in a digital transformation of their finance organisation.
At the same time, different jurisdictions may also present different challenges – tax compliance and payment networks that are standard in some countries may be more complex than others, so there isn’t a one-size-fits-all solution.
That said, there is still much that businesses can do in the new year as they continue to digitalise and improve their operations with technology. A phased approach to automate accounts payable, reduce rogue spending, and conserve cash certainly would be a good start.
