What is spend management: process & benefits

Ever had the experience of looking at your bank statement and noticing you’ve been paying for two of the same subscription for months? It’s easy to lose track of one person or family’s spending habits, so a company with dozens or hundreds of employees presents a scary possibility.

Rather than trusting that it’ll all be okay, you can instead turn to the security of spend management. You can control costs, of course, but you can also unlock new areas of value for your business and improve your margins and efficiencies.

If you’re not sure or want to get into more detail on spend management, this article is going to serve as your one-stop shop.

What is spend management?

Spend management is the process of managing what your company spends. Fairly self-explanatory, but we can do better – and more specific – than that.

The term covers everything from processing and paying invoices, managing and reimbursing employee expenses, monitoring cash flow, and reconciling accounts. Good spend management processes lead to accurate records, compliance, and time and cost savings.

Spend management starts with internal processes, but external software helps companies set, manage, and optimise those processes.

The spend management process explained

Every company will have unique elements to its spend management process, especially at a more granular level, but we can explain a broadly applicable process that many companies will find familiar.

• Budgeting: Agreeing what your company will spend, broken down by departments, and costs within those departments.

• Approvals: How requests for spend are managed, using either automated rules or manual reviews.

• Tracking and visibility: Seeing the status of budgets, purchases, overall trends, and spend categories.

• Payments: The infrastructure needed to complete approved spend requests, whether with petty cash or an international bank transfer and its associated FX costs.

• Reconciliation: Making sure expenditure is aligned with your approval and bank records.

That’s a basic expected flow, but spend management processes can involve much more complexity, including:

• Purchase orders

• Out-of-pocket reimbursements

• Vendor relationship management

• Contract analysis and negotiation

• Vendor, market and currency analysis

Common challenges businesses face in spend management

Spend is a difficult beast to tame. There’s always a reason to spend money and, as your business grows, the reasons seem to grow as well as the price tag attached to them.

There are some pitfalls to avoid as you begin to integrate spend management into your company. These are repeated time and time again, regardless of the size, industry, or location of the business.

Relying on manual processes

Tracking spend with a spreadsheet and chat messages is a fast-track to inaccurate data and gaps in your financial records.

Everything from spend categorisation to data cleansing becomes either more complicated or more vulnerable to error. When you can’t trust your data, you can’t make accurate decisions about what, how, or why you’re spending precious funds.

Using too many tools

A patchwork of single-purpose tools will lead to complications and blockages. The more systems you have to integrate and, in some cases, manually reconcile, the more opportunities there are for errors. Even if you manage to keep everything together, you’ll be wasting time compared to using a unified tool.

Fragmenting and siloing certain financial functions can be useful for security, but this is not one of those cases. Spend management can involve complex chains of requests, approvals, and payments. Using a different system for each link in that chain is administrative overload for you, your teams, and your company.

Hidden and unnecessary fees

Any spend management tool will come with fees, so it’s unlikely you can avoid them entirely. That being said, there are plenty of ways to spend more money than you need to.

Paying for multiple tools to do the tasks of one is a surefire way to waste money. It can also lead to some unexpected costs that can sneak in without careful review. For example, if you choose to use your GBP bank account to send suppliers USD payments, you might be paying 10x more per transfer, including additional FX costs.

Taking one of the UK’s big banks as an example. Sending a £10,000 GBP to USD payment, the costs would be as follows.

Airwallex is at least 65% cheaper – multiply that by however many international transactions you make and the difference is staggering.

Compliance risks

Just as disparate tools expose you to data and cost risks, they also increase your surface area for non-compliance.

The more platforms and people your data has to pass through, the more chances there are for things to get missed or misinterpreted. Before you know it, your budget according to Platform A is twice as high as on Platform B. Spending rules become slack, costs get out of control, and you’re right back where you started.

This also passes further up the financial chain of command. Responsibilities like your company’s tax filing and reporting can be affected, which can have serious consequences.

Why unified spend management matters

Spend management solutions aren’t top of mind for startups and young businesses. You have a small team, maybe just the founders, and everything can be managed ad-hoc and with a quick conversation across a busy desk.

As you grow, use cases start to appear: Local payment rails to pay an international supplier or an automation that tracks subscription costs from your bank feed, for example.

Before you know it, you have a mismatch of tools doing vaguely related tasks and a bloated fintech stack. A single, unified platform is the answer – and starting with it is a lot easier than trying to make it work later down the line.

Key benefits of effective spend management

Effective spend management is great for knowing and approving your outgoings, but it’s also an opportunity to make cost savings and efficiencies in your business. With a unified system, there’s also the opportunity to make more strategic decisions with budgets that isn’t possible when each team operates in silos.

Financial benefits of streamlined spend management

You will:

• Minimise errors and wasted spend

• Identify and reduce unnecessary spending

• Improve spend control against company policies

• Assess the cost-to-value ratio of different vendors

• Improve procurement and contract management processes

• Compare spending vs. usage data to inform contract negotiations

• Access real-time spending insights to unlock more agile planning

• Avoid expensive and unnecessary FX and international transfer fees with a multi-currency account

Operational benefits of streamlined spend management

You will:

• Save time on data entry and repetitive tasks

• Free up resources for more strategic activities

• Reduce manual human errors and the chance of compliance risks

• Introduce or improve cross-border management of company spending

• Improve vendor relationships through faster payouts and greater payment visibility

Best practices for implementing spend management software

If you’re going to integrate a new spend management platform into your business, you want to do it well.

Ideally, your chosen platform will offer a guided onboarding process to help you get set up smoothly. That’s just the beginning, though. To maximise your setup and results, consider the following three areas.

Automation and connection

Automation has become the buzzword of the 2020s, thanks to AI. However, automation in spend management has been around for a long time. There’s no hype here, just great tech.

Take Optical Character Recognition (OCR) receipt scanning, for example. Users take a photo of a receipt and the software processes the image, producing a completed expense template for submission. Automation makes the whole process quick, easy, and much harder (albeit not impossible) to get wrong.

Other automations will add similar ease to your work:

• Data reporting can run automatically

• You can set payout and reimbursement schedules

• Bulk payments can save your team hours of admin time

All of this becomes that much more powerful when integrated with your accounting and procurement systems. Choosing a solution that has financial infrastructure embedded within it removes complexity and increases efficiency. It’s a dream.

Centralised data management for scalability

When you use a unified spend management tool, there are no gaps in your spending data. You can quickly and flexibly assess your spending – dividing it by location, values, vendors, departments, individuals, and many more categories.

Once you have this information, you can make strategic decisions about budgets and priorities in the future. Knowledge is power, so the saying goes, and a unified platform can be an incredibly powerful tool for your business.

Understanding your stakeholder profiles

Your marketing team spends in completely different ways to your facility maintenance team. Both are valuable to the company, both need their own controls and allowances when it comes to spending.

As a result, you’re going to need more than one onboarding program. A team-by-team plan, with a named lead for the project, will help your teams make the most of their 

From a company perspective, you will need to work out which teams need which features. Virtual or subscription cards will be useful for advertising spend, whereas your IT team’s equipment orders might need purchase orders and approval flows.

Why choose Airwallex for spend management?

Airwallex is one of your options for unified providers, but you get a lot more than just spend management with us.

But, first, let’s start with spend. With Airwallex Spend, you can manage your business’s entire spend and expense process in one location with free main features.

• Corporate cards: Virtual and physical cards in 50+ countries

• Bill Pay: Automating your accounts payable function

• Expense management: AI-powered reimbursements

All of which come with powerful controls, approvals, and customisations.

There’s a lot more on offer beyond Airwallex’s spend management, though. With your account, you also get:

• Multi-currency accounts, so you can make local transfers around the world

• Low-margin FX rates, so you keep more of the money you earn

• Payment technology, so you can get paid quickly and directly

• Embedded finance tools, so you can build fintech into your product

• Accounting and ERP software integrations, so you can create an internal data powerhouse

Ready to learn more? We’re ready to show you the ropes!

You’ll wonder how you ever survived without it

A unified spend management platform isn’t going to be the most glamorous investment you make in your business this year. It’s probably the most important one.

Any tool that can lower costs, unlock more time for valuable work, create a healthier cash flow, and increase your agility to respond to both challenges and opportunities is worthwhile.

You should do your own research into the best spend management platforms and if Airwallex comes out on top, we’d love to provide the infrastructure for your financial universe.

Join Airwallex

FAQs

Before we wrap this up, we’re going to answer some of the most common questions our team receives about spend management. We’re always happy to answer them, but it might save you sending an email.

What is the difference between spend management and expense management?

Expense management is a subset of spend management.

Expenses are out-of-pocket spending by employees that the company reimburses. Spend management is the practice of tracking, approving, and managing all expenditure by the company.

Think of it this way: All expenses are spend, not all spend is expenses.

Do SMEs need spend management or just larger companies?

Every company can benefit from spend management systems, because every company spends money. Even microbusinesses pay for services like their email and website or their materials and packaging.

Having a system that holds this information – a bit like a second brain – gives you time and control over the money leaving your business. It doesn’t matter how little or large the business is, that’s always going to be helpful for cash flow management and a sense of control.

How does spend management help global businesses?

Global businesses have the hardest time tracking their expenditure – they have to account for currency gains and losses, transaction costs, and holding deposits in different currencies.

A unified spend management platform can simplify all of this information into a single dashboard. Visibility is the greatest challenge in a global business, but platforms like Airwallex can put everything into perfect focus.