Controlling the costs of maverick spending

Did you know your company could be losing 10% to 20% of its savings due to maverick spending?

That’s according to a study by fintech software provider Basware and The Hackett Group.

A report by B2B software developer Order says maverick spend can eat up as much as $322,000 of a mid-size (100-999 employees) business’s annual supplier spending budget.

In general, employees don’t spend like this on purpose. It’s what happens when there are transactions that don’t follow contract terms or company rules on what’s approved for purchase.

But maverick spending can be costly. Besides overspending and inaccurate budgeting, other risks include:

• purchasing inferior quality goods
• potential breach of contract
• working with suppliers that may not be legitimate, and
• more reconciling work for your accounting team.

Making some policy changes can help put that money back in your budget.

Taming maverick spending

A good place to start is compiling all your spend data, including credit card statements, invoices, financial documents and enterprise resource planning (ERP) modules. Put it together in a spreadsheet, removing duplicate data, and categorize it in a way that makes it easy to analyze.

Do any unexpected purchases or unknown vendors pop up? How many one-off purchases are there? Are your employees accountable for their spending? Are you getting the best deals you can find?

Then, calculate how much was spent on preferred vs. non-preferred vendors in each category over the last year. That’s where you’ll reach the hard numbers on your maverick spending.

Based on that information, some changes that can help, according to payables automation provider Tipalti are:

• setting limits on payment cards so that purchases from unauthorized vendors are blocked
• requiring purchase orders
• requiring approval from a trusted manager for purchases above a certain price
• setting spending limits for certain teams and individuals
• creating a list of your pre-approved, preferred suppliers and encouraging staffers to refer to it first when making a purchase
• showing your employees how following the spend management process benefits them, and
• analyzing whether your payment cycle can be streamlined.

It might also be a good idea to establish some guidelines for spot buying, when employees need to satisfy an unplanned, immediate need with a short-term purchase.