Why is spend management a strategic focus for CFOs?

Technology has facilitated multiple tasks for financial officers as data is now available in real-time to make informed decisions on different matters concerning the organization.

One of those tasks is spend management, which consists of keeping track of how money is flowing through an organization to ensure that its financial goals are met.

The task of managing these expenditures goes from appointing potential originating parties to granting permission to certain individuals who will have the capacity to spend the company’s money as needed.

Now, how important is spend management for those responsible for a business’s finances? In this article, we share 5 benefits of this activity and illustrate how a spend management platform can radically affect the performance of a business.

#1 – Profit margins can be improved

A company’s profit margins can be affected by multiple items. The first, and typically the most relevant, are the direct costs associated with the business’s core activity. However, operating expenses can also eat up a large chunk of a company’s sales if they are not adequately managed.

These expenses include rent, salaries, sales commissions, marketing campaigns, and legal fees, among others.

For a financial officer, managing how much money goes to each of these concepts through the use of spend management software can be the difference between a profitable quarter and one in the red zone.

#2 – Strengthens internal controls

As businesses grow, it gets more and more difficult to keep track of who has access to the different payment methods that the company has made available to finance its day-to-day operations.

A crucial role of a company’s top financial officer is to make sure that only the people that have been authorized to do so can spend money on behalf of the firm. Nowadays, spend management software facilitates this task by allowing CFOs to grant and remove permissions to multiple individuals within the organization in just a few clicks.

This feature helps companies in preventing undesired situations such as embezzlement and misappropriation.

#3 – Facilitates forecasting

The future behavior of most operating expenditures can be easily predicted as they are closely correlated with the company’s total sales or production volumes. Meanwhile, others may be on an uptrend or downtrend depending on how certain factors evolve through time.

Without a spend management platform, it would be more difficult to identify the behavior of certain relevant spending accounts and that can typically affect the accuracy of financial forecasts.

By using data from past periods, it is now easier for CFOs who rely on spend management software to forecast how future expenditures will look like. This facilitates the process of budgeting and modeling and it allows the organization to secure the resources it needs to achieve its goals.

#4 – Reduces the need for external short-term financing

External financing can be expensive and asking for more money than needed typically leads to lower bottom-line profitability.

As mentioned earlier, adequate spend management can lead to more accurate financial predictions for a business.

If we consider that these forecasts are typically used to anticipate how much money the company will need to remain operational, more accurate cash flow forecasts can reduce the amount of money a company will require in external financing in case its cash account is expected to run low in the future.

#5 – Prevents operational bottlenecks

One typical reason why businesses experience a decline in productivity is the bureaucracy that often accompanies the process of getting a certain expenditure approved.

Think of a purchasing or maintenance department that needs to go through multiple people within the organization to fulfill an urgent need.

Through spend management software, CFOs can rapidly approve any unexpected cash disbursement coming out of previously authorized originating parties.

Most of these programs have even launched mobile apps that allow these busy professionals to review and approve payments on the go and that translates into higher productivity.

Bottom line

As much as generating sales is the top goal of a commercial manager, keeping a company’s cash disbursements under control is one of the most important tasks of a financial manager.

The 5 benefits of spend management highlighted above should illustrate why this aspect of the job is so crucial.