5 Ways to Keep Business Spend Under Control

Posted on 10th June 2019

You’ve done all the hard work to get the right suppliers in place. You’ve satisfied due diligence, carefully worded your contracts to stipulate key deliverables and KPIs and implemented a contract management system to keep everything on track. So why is spending spiralling out of control, threatening to undermine relationships with suppliers and damage your business?

Excessive or maverick spending can result from staff ignoring your procurement sign off process or using unauthorised suppliers. This may not be intentional, as they may not know the correct procedures. But sometimes, overspending can show fraudulent activity, for example, order splitting or Purchase Orders (POs) submitted after a supplier has issued an invoice. What measures can you put in place to control overspending?

Conduct a spend analysis

The first step is to carry out an audit of your spending to find out where any unexpected spending originates. A spend analysis should identify:

•            Unauthorised suppliers

•            Categories of overspend

•            Who is exceeding their authorised budgetary limits

•            If anyone is spending outside their department or spend category

•            How much spend is by-passing POS and being paid from direct invoices

Once you know where the problem is, you can put an action plan in place to deal with the issues. This may take the form of training for your employees, reviewing authorisation levels or educating your suppliers on your purchasing processes.

It’s also advisable to review your spend data regularly. For example, a monthly review will help you identify issues before they become real problems. Only conducting an annual review may cause overspending which snowballs and causes long-term damage to your business.

Give people accountability

The chances of successfully combatting overspend will increase significantly if you approach accountability from both an individual and cultural level. A culture where managers know their departmental budgets and are empowered to make financial decisions within agreed limits will foster accountability. It isn't just the finance or procurement department's responsibility to exercise control over the company finances; everyone should be involved.

It’s also important to explain to employees what their responsibilities are within their specific roles and what help is available in the business to help them with buying decisions. For example, you may have a procurement process in place with tenders for the purchase of goods over a certain value or for reoccurring services. Employees should be clear on the amount they are authorised to spend and who can approve larger spends. They should also be familiar with the purchasing processes they need to follow, such as the PO or invoicing system.

Introduce preferred suppliers

Having a list of pre-approved suppliers can support best practice in cost control. Make sure you have an easily accessible list of suppliers who provide the products or services required and a quick approval process. This will ensure that your employees don't circumvent your purchasing system and make unauthorised purchases.

Using preferred suppliers also improves efficiency and saves your employees' time as they should have already been through your due diligence process. Another advantage is you can agree on a negotiated rate for the length of a contract and benefit from cost savings.

Terminate problem contracts

Your spend analysis may identify a supplier where overspend is a significant problem. Chances are there will be other issues with the relationship too. For example, they may be charging you for ‘extras’ that you feel should come under the initial contract or ROI has been woefully short of what was promised when you signed the contract. If this is the case, subject to the terms of the contract, you need to do what is right for your business and end the contract.

You may face opposition to termination from users of the products or service who are change averse or have a comfortable relationship with the supplier. However, remove the emotion from the situation and consider the impact the overspend and other issues are having on your business. This will help you make the right decision and allow you to build a beneficial relationship with a more suitable supplier.

Automate your procurement process

Automate your procurement process with a system that gives you visibility of both direct and indirect supplier expenditure. The spend analysis function should automatically load spend data and produce real-time reports that will instantly identify spending anomalies. 

By aligning spend to your contract register, you can see which suppliers are performing effectively and within agreed spend limits. You can also categorise spend for budgetary purposes, improving transparency and gaining an overall view of spend across your business.

If you’d like support to find the right procurement product for your business, Atamis would be happy to help. 

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