Managing spend in organizations of any size can be complex and difficult. Procurement, invoice management, and expense management – or all of the ways that your staff spends money – can be overwhelming if your company still uses manual processes and legacy systems that require a lot of time and effort to execute routine transactions.
While procurement departments are looking to gain visibility into the company’s indirect spend, with an eye to generating savings, the leads are often left to answer a few common questions about the buying environment at their organization:
- What are the largest spend categories?
- What are our top five open contracts?
- When are those contracts up for renewal?
- How many vendors do we contract with for each category?
- Do we track certificates of supplier insurance?
- What is our spend with minority or woman owned businesses?
To help answer these questions, utilizing a Business Spend Management (BSM) application will provide automation and efficiency, while also providing significant savings. As businesses turn an eye towards more strictly controlling working capital, there are five common signs that your organization is ready to make this move.
Common BSM Software Drivers
1. Transparency into Pre-Approved Spend
You want to improve profitability, but growing revenue is hard. You can hire the best sales staff who reached every annual target at their last company, but if spend increases, your profitability will be stagnant.
A BSM application enforces spend compliance and improves profitability by requiring users to obtain preapproval for all purchases. Traditionally, the finance department is made aware of a budget overage after the invoice arrives, at which point it is too late. With a BSM application, you are able to involve finance and budget owners in the purchasing process and gain their approval before agreeing to a new commitment.
2. Scale Without Increasing Full-Time Equivalent (FTE)
Modern BSM applications can digitally link procurement and Accounts Payable. If you find that month-end accruals are taking longer to process as the company grows, or you are hiring additional personnel for invoice processing, a BSM application will reduce the effort needed to reconcile between committed and actual spend, as well as reduce the workload on you Accounts Payable team by shifting invoice creation responsibility to your suppliers.
3. Third-Party Supplier Risk Assessment
Procurement groups often control the onboarding of new vendors, which includes tracking their certificates of insurance, monitoring third-party data access, and their business use. Procurement is a gatekeeper to your business data, and managing third-party risk without an application is a challenge. A BSM tool will store a repository of supplier information, provide alerts at key dates, and perform a supplier risk assessment based on tax ID or Data Universal Numbering System (DUNS) number.
4. Contracts Auto Renewing or Terminating Without Notice
What is worse: a contract that auto renews when you were looking to cancel, or a contract that terminates and halts day-to-day business due to that lapse? BSM applications track contract types and dates (fixed, auto renew, perpetual) and notify budget owners and procurement teams of key contract milestones.
Many contracts also have termination clauses, and you lose all leverage to negotiate savings if you do not begin discussions in advance. A BSM tool will alert you as the termination notice approaches, which avoids a contract event without your knowledge and gives you the ability to leverage spend data to negotiate volume-based discounts.
5. Issues with Late Payment for Vendors
Managing working capital is back in the spotlight, and companies who manage vendor relationships successfully can negotiate better terms, such as Net 60 or a prompt pay discount. A digital BSM tool allows Accounts Payable to reduce processing times and provides visibility and notifications to suppliers who can communicate with an audit log through an invoicing channel. There are no longer calls to Accounts Payable looking for payment and vendors will get a notice when bills are paid.
In order to provide a compelling case for company leadership when setting up a procurement organization, collate and synthesize data to quantify the anecdotal evidence that the CFO shared during the onboarding process. With some solid facts and documented benefits case, it will be easy to convince CFOs that a BSM application would be worth the investment, and over time, pay for itself. Following a vendor and system and implementation partner selection, your organization will be on its way to tackling business spend management.