For most employees, expense management is a necessary evil. Reconciling business expenses is a gargantuan task, and employees have limited hours in their day. Identifying specific spending patterns and then cutting costs can seem even more impossible, especially when team members must juggle time planning new strategies, releasing new products, and firefighting business challenges.
Making matters worse is the fact that business spend can easily accumulate and compound without anyone noticing. A single department may feel that they are controlling costs responsibly; it’s not until executives zoom out that they see just how much money the company is losing or failing to capture per year because of poor spend management across all of its departments.
Technology has been the key enabler keeping businesses afloat in the wake of Covid-19, and it has also been critical in the development of post-pandemic recovery plans. McKinsey reports that Covid-19 has underscored the importance of decision-making tools in a crisis; however, it isn’t enough to search for the most affordable digital platform or software-as-a-service (SaaS) solutions and sign on the dotted line.
Digital initiatives such as a switch from offline to online spend management must be well-thought-out so that employees can efficiently keep track of spend and executives can achieve deeper spend visibility.
Survival demands a well-thought-out plan
Surviving is not the same as thriving and being prepared for the future. The pandemic highlighted just how many businesses were ill-prepared to face a significant business catastrophe or “black swan” event. They relied on the assumption that their short-term weekly, monthly, or quarterly projections were accurate and reliable, and prepared the bare minimum to survive to that point.
These assumptions don’t harm the company when all goes as planned. But what happens when a sudden change occurs, and they don’t have the bandwidth or liquidity to adjust? Even in fair weather situations, some businesses may close because they did not seek investor funding in time or incorrectly calculated their runway.
Southeast Asian businesses are struggling severely during Covid-19. A November 2020 survey of 4,500 enterprises across 45 countries conducted by the International Labour Organisation reported that micro and small enterprises were most affected by the pandemic, and that cash flow management was one of their most significant challenges.
Thousands of micro, small, and medium businesses in Asia declared insolvency during the pandemic because of widespread disruptions to supply chains and demand. Though businesses are slowly beginning to recover from the impact of Covid-19, the pandemic is not the only business disruption that companies will encounter. In order to achieve true resiliency against unexpected events, businesses need to look inwards, take control over their spending, and plan for the future.
What is spend management?
Spend management is the continuous process of collecting and analysing financial data to improve the way money is spent to grow the business. It’s a step towards defining and mapping the overall ecosystem, which facilitates improved performance and reduces waste. Effective spend management allows teams to redeploy funds as needed in response to change.
Spend management takes traditional expense recording processes and shifts them online. Companies that conduct spend management can automate repetitive, manual tasks, helping employees redirect their time and energy towards growth-focused activities.
Businesses that want to mitigate spending often do so by carefully managing supplier relationships and contracts and requesting that employees file reports for their business-related expenditures. Not only is this tedious—once this data is collected and reconciled for compliance purposes, it’s often stored away in a digital cabinet when it could actually become a source of valuable information for the business.
Digital spend management seeks to leverage information that businesses already have and make it useful. Find out more about the different aspects of Spend Management: Traditional vs Modern Spend Management.