Spend Management Strategy Field Guide

What is Strategic Spend Management?

Traditionally, spend management consisted of tactical activities to track, analyze, and control business expenditures across core procurement areas like expense management, invoice management, and supplier relationship management, so expenses are budgeted, approved, and paid on time.

Spend management strategy builds on these tactical activities and aligns with business goals to plan, design, optimize, and implement processes, systems, and controls to ensure a high ROI on business expenditures. An effective spend management strategy needs accurate expense data and analysis to be effective. It should include plans and steps for streamlining existing processes, integrating automated spend management tools with other business systems, and collecting and analyzing expense data.

A spend management strategy is your company’s roadmap for maximizing ROI on expenditures. It lets you implement smart spend management goals based on accurate data and analysis and build a plan to achieve them and drive bottom-line success.

Spend management strategy is a company-wide, long-term approach to leveraging expenses data, processes, and tools to control expenses, streamline expense management, reduce risk, optimize supplier relationships, and maximize the ROI of every dollar a business spends.

Why Is Spend Management Strategy So Important?

Spend management is quickly becoming a strategic priority for businesses and AP roles and responsibilities are changing rapidly in response. According to Stampli’s 2021 survey of AP teams “AP In 2022: Expectations, Technology, Opportunity,” the most important skills for AP teams are cash management, data management, and data analytics – all skills with a strategic focus.

Businesses can’t afford to waste any money, and in today’s economic reality, the margins for error are very slim. Without a comprehensive spend management strategy, businesses face higher transaction costs and lower operational efficiency, which can spell disaster for the bottom line. It’s crucial to gain visibility into expenditures and take control of spend, and the best way to do that is to develop and implement a spend management strategy.

In a nutshell, a spend management strategy is important because it:

Aligns your spend management activities with business objectives;
Shows you how and where your company spends money;
Enables you to take control of expenditures;
Lets you forecast and plan for future costs;
Gives you the tools to make and implement informed decisions;
Maximizes your ROI on expenditures.

Core Benefits of a Spend Management Strategy

Designing and implementing a good spend management strategy saves time and money, which improves your cash flow and profitability. You can then use the money you save to invest in activities that drive business growth.

Here are six of the top benefits:

1. Increased Operational Efficiency

Streamlining and automating processes and reducing delays save time and money. For example, identifying and reducing the number of duplicate orders and invoices can immediately reduce procurement costs, and the time spent tracking down and correcting the errors.

2. Ensuring Compliance with Expense Policies

A spend management strategy unifies and clarifies expense policies, simplifies processes, and tracks expenses and approvals in real-time. The strategy makes it easier for employees to submit expense reports, increases compliance and saves time and money.

3. Mitigating Fraud and Errors

Manual expense procedures make it challenging to track expenditures, which may leave you exposed to risks such as incorrectly entered expenses and fraudulent activity. When you track expenditure data and approvals in real-time, you can detect and address errors and fraud.

4. Reduced Borrowing Costs

The more money your business saves on expenditures, the less it needs to borrow to finance operations and growth. That means that you pay less in interest and reduce company exposure to increasing interest rates.

5. Optimized Vendor Contracts and Pricing

With organized expenditure data and contract information, you can stay on top of your spending on suppliers and contract renewals. When you know what you’re spending with a given supplier and the terms of your contract, you have the flexibility to negotiate better pricing and terms. And because you don’t have to burn time and money digging for spend and contract data, you can easily switch suppliers if needed.

6. Gaining Insight and Making Smart Growth Decisions

Tracking and controlling spend means you always know how much money your business is holding, so when it comes time to invest in growth, you know how much you can afford to spend. It also means you can anticipate and address problems with expenditures instead of reacting when they happen.

How to Build and Implement a Spend Management Strategy

Approach your spend management strategy development as you would any other strategic project in your business. An effective spend management strategy saves money, which has an immediate and significant impact on your bottom line. Take a deep and honest look at your company’s P2P process to see what you spend, what you’re doing right, and what can be improved.

Follow the steps in this guide to ensure that your business has the tools, data, and resources to maximize ROI on your business expenditures. We’ll start by looking at how to manage your spending to cut costs.

Cut Costs with Expenditure Management

The saying goes, “You can’t manage what you can’t measure.” Nowhere in business is this more true than in spend management. The first step in developing a spend management strategy is to get the big picture:

How much money your company spends;
What it spends it on;
Who is approving the expenditures.

Accurate expenditures data is the foundation of an effective spend management strategy. Once you know how your business is spending money, your CFO and AP team can begin to track, manage, and forecast your expenditures.

Here are five steps to getting expenditures under control:

Step 1: Identify and Collect Expenditure Data

Begin by identifying and recording every expenditure your business is making. This can be a long and challenging process, but the data it provides is invaluable to managing your expenditures. Collect expense data such as receipts, purchase orders, invoices, credit card payment information, and petty cash receipts. Also, collect supplier information such as contracts, statements of work (SOWs), and department-level expense policies and categories. Finally, identify any existing budgeting or spend management tools your business uses.

Step 2: Centralize, Validate, and Categorize Spend Data

Once you have collected the expenditure data, migrate it to a central database in an automated spend management system or another tool. Then validate the data to remove duplicated information and errors to ensure the data is as accurate as possible. After you validate the data, you can sort it into categories. Base your categories on how your AP team wants to use the data – you can create categories for geographical locations, projects, product categories, suppliers, or business units. Categorizing the expense data lets you gain category-specific insights to develop specific spend management strategies for each category as needed.

Step 3: Analyze Expenditure Data

Now you can dive deeper into your company’s spending history and procurement processes to learn more about how your business is spending money. Identify patterns such as recurring expenditures, map out purchasing and approval processes and workflows, and look for irregularities that could suggest errors and fraud.

Analyze your supplier spend data to picture your supplier relationships more effectively. Take note of contract renewals and other key dates, opportunities for better pricing, supplier performance, and invoicing workflows.

Step 4: Build An Expense Management Strategy

After collecting, tracking, and analyzing your spend data, you can build a strategy to reduce costs by managing your expenses. There are a couple of different options at this stage:

Immediately address individual discrepancies and fraud by performing an internal audit;
Create a plan to unify your expense policies into a company-wide policy;
Optimize and streamline your expense and approval workflows.

Step 5: Forecast and Manage Future Expenses

Use your expenditure data and analytics to forecast the outcomes of your spend management strategy, in order to anticipate and mitigate future expenses. Data forecasting lets you model the ROI of different spending activities to predict their impact on your bottom line. It also helps you ensure that you have enough money to cover future expenses.

Forecasting is also helpful for supplier management. For example, if a supplier proposes a discount plan, you can model your cost savings, or you could predict the potential cost impact of switching to a new supplier.

See how Stampli helped Techstars save time and money by reducing AP processing time by 50%

Streamline and Optimize Invoice Processing

Invoice processing is a growing challenge for most businesses. Here are some interesting results from Stampli’s 2021 survey of AP professionals, “AP in 2022: Expectations, Technology, Opportunity“:

70% of AP teams reported that they expected the number of invoices their company processes in 2022 to increase
26% of respondents said they expected the number of invoices to “increase significantly”
55% of respondents said they expected the complexity of their invoice processing to increase, with 24% of AP teams saying they expected it to “increase significantly”

If your invoice management processes are already overloaded, any increase in invoice volume will cause AP backlogs. If your business doesn’t clear those backlogs in time, they can negatively impact your cash flow, which will have a ripple effect across your business.

It’s best to invest the time and money to fix the problem before it has a chance to grow out of control. Here are some strategies and actions you can take to streamline and optimize your invoice processing:

Understand Your Current Invoice Processes

The first step is to learn what happens when your company receives an invoice. That means tracking and recording every step of the invoice process from receipt to payment, and noting what works and what doesn’t.

Your goal is for every person involved in invoice management (executives, procurement teams, AP, approvers, and finance) to understand how your business manages invoices. They should be familiar with invoice management workflows, who is responsible at each stage of the process, who approves payments, and how clients get paid.

This step is essential if your company uses a lot of manual processes to manage invoices, since many of these processes aren’t properly documented and can be prone to errors and delays.

Do this by asking questions such as:

Where are invoices being sent? (email, physical mailbox) Who is responsible for receiving them?
What happens to an invoice when it is received?
Who is checking invoices for errors? What happens if they find an error? Who is responsible for resolving the error?
How are invoices approved? Who is responsible for approvals?
How are approved invoices paid? Who owns the payment process?

At the same time, as you are learning about your invoice processes, look for areas where you may face risk from unauthorized spending, errors, delays, or fraud and may benefit from more risk management. Try to gauge information such as:

Is requisition information like PO number or project name included on invoices? Who is responsible for checking that this information is included?
Are invoice amounts reconciled to scopes of work, purchase orders, or your inventory management and ERP systems? Who is responsible for reconciliation?
Is there a process to detect duplicate, fraudulent, or erroneous invoices? Who is responsible for this process? How are discrepancies resolved with suppliers?
Are you paying late fees? How much are the late fees costing your business?
If you receive supplier discounts, are these discounts reflected on invoices?
Is the tax information on invoices correct?

Armed with this information, you’ll have a clearer understanding of your invoicing processes, and you’ll be able to make informed decisions about strategies and solutions for streamlining and optimization.

Improve Communication, Workflows, and Training

Once you have a clear sense of how your business manages invoices, you can begin to make changes to streamline and optimize your invoice management processes. The changes can include:

Investing in training for key team members
Improving workflows by documenting and optimizing manual processes
Ensuring that communications are clear and timely.

It can help to outsource some of this work to invoice management specialists who can benchmark your processes against industry standards and make recommendations for improvements.

Integrate Invoice Management with ERP and Procurement Processes

Integrating your invoice management with ERP or inventory management systems and your procurement processes will make linking requisitions, purchase orders, invoices, and inventories easier. Linking this information helps reduce costly errors and delays and adds an extra layer of risk management to your procurement processes in general.

By reconciling invoices to purchase orders and inventory, you can ensure that you pay only for what your company needs and that the supplier has delivered the products and services.

Removing Approval Bottlenecks

Approval bottlenecks can wreak havoc on your supply chain. Every invoice sitting in an inbox or misrouted to the wrong person can result in a delayed shipment — and bring production to a halt.

Remove approval bottlenecks by clearly identifying approval processes and responsibilities and improving communications, especially what an invoice must contain to be approved. It can also help to build follow-ups into your approval process, so approvers receive a reminder when they haven’t approved an invoice on time.

Automate Invoice Processes

Automating your invoice processes can provide several significant benefits to your business. You can automate almost every manual process. You can use invoice management systems to:

Scan and input invoices
Automate invoice verification
Reconcile invoices to procurement information and approvals
Integrate invoice management with ERP and business systems
Manage payments to suppliers.

Automation also provides a high level of real-time visibility into your invoice management, which can help you improve workflow efficiency, quickly detect errors, and manage risks. It also allows you to identify and forecast trends and modify and optimize your invoice management processes without changing manual processes.

See how Stampli helped Renova reduce invoice processing times by 50%

Improve Supplier Relationships

Supplier management is the main focus and role of procurement teams. It encompasses all the work and processes that maintain positive supplier relationships and ensure supply chain continuity. Core supplier management activities usually include strategic sourcing, contract management and negotiation, performance management, and supply chain management.

More sophisticated supplier management structures can integrate suppliers into R&D, product development, e-procurement, and ERP systems to build greater efficiencies.

Why Good Vendor Management is Important

Good vendor management builds positive supplier relationships based on transparency and a mutual interest in growing your business. It also facilitates candid and open communication, making it easier to resolve disputes and negotiate contract terms. It’s much easier and much less expensive in time and money to manage a positive supplier relationship than one that has become dysfunctional and adversarial.

Supplier management also makes your business more productive and efficient. Your suppliers are already a valuable resource for the products and services they provide, and vendors support your business. Vendors can also help grow your business as partners or stakeholders by:

Advising and assisting with product development and process optimization
Helping you identify savings opportunities
Managing cash flow through vendor credit and better payment terms

When you have a positive and transparent relationship with your suppliers, it also becomes easier to negotiate discounts or volume pricing, saving your business money while still gaining access to the products and services you need. You also save money through supplier continuity – switching suppliers can be costly, so it’s almost always preferable to keep a tried-and-true supplier than change to a new one.

Supplier management also makes it easier to manage and mitigate supply chain risk through better communications, continuity of supply, and better detection and control of errors and fraud.

Steps to Improving Supplier Relationships

Your business probably has a formal or informal system in place for managing your suppliers, whether it’s a sub-function of your procurement team or you have a dedicated supplier management policy and team. Building and implementing a supplier management strategy lets you optimize your existing processes and procedures to make them more effective and efficient.

Step 1: Identify Where Outsourcing is Needed

The first step is reviewing where your business needs outside suppliers and where it is currently outsourcing. Look at your business goals, operational needs, and areas where outsourcing may bring cost savings. Also, look to places you may not have considered for outsourcing or where you can expand an existing relationship with a supplier, such as product development, strategic planning, or supply chain optimization.

Step 2: Develop Selection Criteria and KPIs for Choosing Suppliers

Once you’ve identified areas where you’d like to outsource, develop the criteria you want to use for selecting vendors and managing their performance. The specific criteria will depend on your business but can include the price points you need, supplier adherence to standards, past performance, reputation, flexibility, and capacity.

This step is also an excellent time to determine how you will measure supplier performance. Often, your business can incorporate service level or performance agreements into your master contract with a supplier. Finally, decide on the management structure you will use once suppliers are on board, including:

Frequency of status meetings
Dispute resolution
Invoice management
Requisition and ordering processes
Performance management
Supplier termination

Step 3: Identify and Qualify Suppliers

Now that you know where your business needs to outsource and how it will manage supplier relationships, you can find and engage suppliers. Odds are, suppliers will be contacting you already, so part of this process can be ensuring that supplier pitches are getting to the appropriate team member in your company. But it’s worth searching for relevant suppliers and reaching out to them for a quote.

Most businesses begin supplier qualification by looking at price. Price is important, but you also need to consider other factors when selecting a supplier. Fit is critical – it can be challenging to work with a supplier with an incompatible business model or culture. Other essential factors are:

Reputation
Capacity, including the flexibility and scalability to meet your business needs as they grow
Favorable discount, credit, and payment terms

Analyze each prospective supplier’s strengths and weaknesses to understand better how it will be to work with them.

Step 4: Negotiate Contract Terms and Onboard Selected Supplier

Once you’ve selected your suppliers, negotiate the terms of your business together. Be sure to involve all the relevant stakeholders from both parties to ensure your bases are covered with deliverables and contract management.

An effective spend management strategy can be a significant asset during your contract negotiations. It will give you the data and tools to model and forecast different proposed pricing structures to see which is the best fit for your business.

The supplier onboarding process should begin with a kickoff meeting that includes all stakeholders affected by the outsourcing relationship. It helps to have a good project management plan to keep track of all the moving pieces as you integrate the supplier into your ERP, procurement and payment, and other processes and systems.

Step 5: Track and Evaluate Supplier Performance

After you have onboarded a supplier, your supplier management process switches to ongoing performance management. At this stage, transparency and communication are key. Set up recurring status meetings with your supplier to track deliverables and billing and address any issues. Remember to track any contractual key performance indicators (KPIs) or service-level agreements (SLAs) so you can share and resolve them with your supplier during status meetings.

Read how Stampli helped Nationwide Security pay Subcontractors 2x faster

Automate Spend Management Processes

To be effective, a spend management strategy needs three things: accurate and timely expenditure data, transparency, and efficient spend management processes. It’s essential to use the right tools and strategies to:

Track, report, and analyze spend data
Manage invoices and payments
Manage expenses and approvals

Traditionally, businesses have relied on manual processes and spreadsheets to manage their spending and conduct spend analysis. Unfortunately, these methods and tools are slow and prone to errors, and they don’t provide real-time spend visibility. The solution for modern businesses is to turn to spend management automation.

Benefits of Automating Spend Management

Spend management tools, or an all-in-one spend management platform, save time and money by accurately tracking and reporting spend data, and replacing or streamlining manual processes. They can also provide valuable spend analysis and forecasting capabilities that help your business anticipate costs and make informed decisions.

Here are some of the key benefits of automation:

Accurate, Timely, and Actionable Spend Data

Spend management platforms provide a single source of truth on your company’s expenditures. This data provides a foundation for spend analysis, reporting, budgeting, and strategic planning.

Simple and Clear Processes

Tools streamline, simplify, and optimize manual processes for expense reporting, invoice management, and approvals. It’s easier for employees to work within a simple and clear spend management system, which reduces errors and delays. It lets you quickly and easily set up and implement company-wide expense policies and processes.

Better Risk Management and Compliance

Spend management platforms can collect, centralize, and report on key expenditure data in real-time, so you can instantly and accurately see what your company is spending and where it is spending dollars. This information is invaluable for managing and mitigating errors, fraud, and other risks, performing audits, and ensuring compliance with tax, trade, and other regulations.

More Efficient Workflows

Cloud-based spend management tools that incorporate machine learning and AI can significantly improve workflows. Cloud-based platforms enable employees and suppliers to access expense reporting and payment dashboard resources from any device anywhere globally. AI and machine learning-enabled solutions can eliminate the need for manual entry of paper and electronic documents such as invoices and contracts, which reduces data entry errors and processing time.

How to Implement Spend Management Automation

Choosing and implementing a spend management automation solution can be intimidating, but it doesn’t need to be. Here are four steps you can take to make the process easier:

Step 1: Set Goals and Decide Which Processes to Automate

Before looking at spend management automation solutions, you need to understand what you’d like the solution to do. If you’ve built a spend management strategy already, you can simply look at your spend management goals and existing processes. Otherwise, take the time to collect and review expenditure data and map out your processes, noting what’s working and where you’d like to see improvements through automation.

Step 2: Look at Spend Management Software Solutions

Automated spend management solutions range from single-function solutions to comprehensive spend management platforms that automate your entire spend management process. With your needs and goals in mind, see which platforms are the right fit for your business. As with any potential supplier, develop criteria to evaluate potential spend management providers and set KPIs to manage their performance after you’ve signed the contract.

Step 3: Implement and Integrate the Spend Management Solution

Once you’ve chosen a spend management platform and negotiated a contract with your spend management provider (now a supplier!), begin implementing the solution and integrating it into your business systems. Most spend management platform vendors will work with you to help with implementation. However, you will still need to make the necessary changes to workflows, responsibilities, systems, and processes to bring the spend management system online at your business.

Step 4: Optimize Spend Management and Generate Reports

Once your spend management software is up and running, you can use it to perform spend analysis and generate spending reports. You can use the analysis results to pinpoint areas where you can optimize your spend management processes. You can also compare the results to your target KPIs and service level agreements to evaluate the performance of your spend software and address performance issues with your supplier.

See how Stampli helped Spanish Fork City automate expense allocations and make their invoice cycle 2x faster

Empower Your Spend Management Strategy With Stampli

Stampli is the perfect solution for businesses looking to get the most out of their spend management strategy. Stampli’s end-to-end AI-enabled solution brings together AP communications, documentation, processes, and expenditure data all in one place to give your business total control and visibility over expenditures.

Our machine learning technology (“Billy the Bot”) automates invoice processing to reduce errors and delays and let your AP team see every expenditure, approval, and process in real-time. In addition, Stampli provides accurate real-time spend data and analysis that allows your AP team to control expenses, manage risk, stay compliant, and anticipate future costs.

Stampli’s award-winning customer success team will help you launch your spend management solution in weeks, not months while maintaining your processes and systems.