Why Spend Management is a Strategic Focus for CFOs

The fourth quarter is here, and we continue to feel the effects of the pandemic.

It’s become apparent that businesses will need to evolve and embrace new strategies to thrive in 2020 and beyond.

Adapting to the economic downturn caused by COVID-19 will require all CFOs to take a strategic approach to spending. 

As one of the key CFO trends for 2020, spend management is a framework that moves beyond simply controlling expenses to managing company spend holistically.

Leaders will find that using a spend management approach addresses three major pain points:  

• Insufficient visibility into spending that makes it difficult to reach strategic decisions
• A lack of efficiency in accounting tasks that burns valuable time for accounting teams, and
• Inefficient allocation of resources that stands in the way of scalability and profitability. 

Let’s take a look at how spend management addresses these pain points and why it should be a strategic focus for CFOs during the economic downturn. 

Reason #1: Spend insights support strategic business decisions

As a leader, you have access to all of the information you need to analyze company performance in real time. More importantly, it should be easy to translate and interpret this information to enable strategic decision-making.

This goes beyond sales data or revenue building and requires a look at spend.

With real-time spend metrics and insights that are housed on a centralized platform, an accounting team can generate reports filtered by departments, roles and individuals.

This data can be used to understand different operational KPIs such as operational efficiencies (e.g. how long does it actually take for your team to get what they need from the first point of request to the receipt?) and spending trends.

During a downturn, when the cost of acquiring customers tends to rise, it’s important to keep an eye on these types of spend metrics.

Regular analysis of real-time data drives better business decisions by helping leaders budget for best and worst case scenarios, streamline procurement strategies, and identify spend that can be deferred.

It also makes it possible to stay accountable to what’s left in the budget by improving the transparency around where spend is occurring. 

Reason #2: Spend management improves operational efficiency

A well-developed spend management strategy that includes robust software improves operational efficiencies.

Streamlining or eliminating time-consuming administrative tasks like manual month-end reconciliations and email-based purchase approvals, spend management allows accounting, finance and operations teams to work more efficiently.

This gives them time to focus on higher-value work, building a solid foundation for spending and purchasing, including: 

• Implementing procurement processes such as purchase orders and approvals
• Increasing internal controls and formal protocols, and
• Ensuring compliance around SOX, which is essential for public companies. 

Perhaps more importantly, spend management software gives teams an opportunity to improve broken processes that might be ingrained in the way the organization operates.

With teams working remotely, the challenges created by these processes have been exacerbated.

A common example of this is that Accounts Payable often pays invoices without context. With well-thought-out purchase approval workflows powered by a digital approval workflow, companies can gain control over this type of spend whether teams are distributed or working in the office.

Reason #3: Cost savings drive growth through improved resource allocation

During an economic downturn, it’s natural for companies to focus on decreasing costs through expense management.

But let’s look at cost savings strategically, understanding that it’s not just about reducing costs.

Rather, it’s about gaining an understanding of where the organization is currently spending money and how spend decisions are made. This enables finance leaders to benchmark and analyze company performance, enabling them to allocate resources more efficiently.

It’s important to understand that resource allocation isn’t necessarily about saving but about ensuring spending is optimized in a way that increases profit and makes it possible to scale operations quickly.

A holistic spend management approach and effective procurement strategy have a wider impact on an organization, ensuring a company is getting the best from its suppliers and other resources, in turn enabling it to better achieve its goals.

The bottom line

There’s no question that the impacts of effective spend management on an organization are far reaching, making it one of the important CFO trends of 2020.

Finance leaders should use this time to implement or integrate effective spend management systems that will ensure all spend is captured and accessible on a single platform of truth.

Spend management will not only improve operational efficiencies, but also provide spend insights that will support strategic business decisions and lead to cost savings that drive growth through improved resource allocation.