Spend Control: What is it and why is it important in business?
As companies continue to navigate this uncertain economic climate, one of the most important practices for any business is keeping tight control of their expenditure.
Spend control is critical, not only for managing company funds, but also for running an efficient and competitive organisation. This article will take a closer look at why spend control is essential and how businesses can best implement strategies to help them stay on top of their finances.
What is spend control?
Spend control is the strategy businesses use to monitor and manage how budgets are spent across the organisation. This includes the policies and processes in place, as well as the technology companies use to control spending and save money.
Controlling spend helps businesses to meet financial goals and wider business objectives. By identifying unnecessary expenses, maintaining high operational efficiency, and encouraging investment into profitable outlets, spend control can be the catalyst for overall business growth and success.
However, having true control over spending is only possible if the organisation has a thorough understanding of all company spending, having access to both historical and real-time data.
While “spend control” may sound like a fairly obvious practice, many businesses struggle to implement processes that help to spend budgets in a considered, logical way. Spend control is more than just cutting costs – it means having a methodical system in place that finance professionals can use to monitor, analyse and report on spend data from throughout the organisation. This information can then be used to inform best practice in the future.
The difference between “spend control” and “cost control”
There’s a common misconception that “spend control” implies “a reduction in spending” – this is not correct. Reducing expenses is what is meant by cost control. Rather spend control is about spending money in the right ways and proving how the business could be more profitable. This often involves reallocating budgets and shifting investments throughout the business, which is what some people confuse with cutting costs.
Why is spend control important?
Spend control is a crucial discipline for all companies because of how it directly impacts the success and profitability of the organisation. By understanding how effectively budgets are being used to generate a return on investment (ROI), businesses can reprioritse, adapt and make better informed decisions in the long term.
Do companies really need to control spending?
Yes, companies need to control spending in order to best meet their objectives and maximise their financial success. Here are some of the main reasons why:
- Increased profitability: Spend control directly influences profitability. By allocating funds to the areas of the business that contribute most to success and deliver the best results, companies are more likely to get significant return on investment (ROI).
- Planning and budgeting: Having a complete understanding of company income and expenses is key to confidently forecasting revenue and profit. This will help the business to create more assured plans in the future, informed by accurate data and insights.
- Competitive advantage: The process of spend control helps to inform management of the most effective strategies for future growth – this can yield a significant advantage over competitors.
- Reducing financial risk: Controlling spending is key to minimising financial risk. If a company is aware of all expenses and records outgoings meticulously, they can better track overspending and even identify important issues such as expense fraud.
5 Consequences of out-of-control spend
Companies must have strong insights and understanding into their finances in order to avoid problems with cash flow and undercapitalisation. If a business lacks thorough reports regarding income and expenses, it may find itself struggling to cover liabilities and unexpected bills.
Mistakes that cost time and money
Without proper spend control, it is easy for finance departments to lose track of invoices and other bills, leading to undercharging, overcharging, duplicate invoices and more. If left unnoticed, this obviously costs the business a lot of money and employees have to waste time fixing errors that could have been avoided with the appropriate process in place.
Delays in closing the books
If an organisation is doing a lot of manual administrative tasks such as gathering receipts, chasing invoices, categorising and reconciling expenses, this can cause a lot of delays when it comes to the end of the accounting cycle.
Inaccurate financial plans
Some organisations have a comptroller, which is a slightly different role to a financial controller or CFO (Chief Financial Officer). While a financial controller is responsible for the day-to-day financial operations, a comptroller is more likely to be responsible for managing projects related to taxes, auditing and compliance with regulatory agencies.
It’s impossible to completely avoid expense fraud within a business. However, with the correct spend control processes and systems in place, companies can minimise the chances of it going unnoticed. If an organisation doesn’t keep close tabs on receipts and expense claims, they are risking losing money by reimbursing the wrong amounts.
How can companies control their spend?
Use a central expense management system
Funneling as many expenses through a central expense management system as possible is hugely important for spend control. Being able to track, organise and analyse data in one place is a great benefit and helps with efficiency. It’s also useful to look at data in real-time, which many systems like this allow you to do. Systems like this are useful for both small expenses, and larger expenses which require a procurement process.
Create and communicate spending policies throughout the organisation
Implementing technology and software to monitor spending is important, however, it is equally crucial to establish clear guidelines and policies to ensure they are understood by all within the organisation. For example, setting a clear company card policy so staff know how to spend budgets, what limits are in place, and what counts as a reimbursable expense.
Set spending limits using software
Businesses can use software which allows managers to set spending limits on prepaid business cards. By implementing systems like this, companies can keep a much tighter control over expenditure by managing how much employees can spend and what budget can be used for.
Automate where possible
Expense management tools like this are a game changer for many financial departments as it allows them to instantly capture receipts from prepaid card payments. These receipts break down the type of purchase, the category of item and the value of purchase. This helps managers to track team spending, as well as finance departments to speed up the book closing process.
Control company spend with Volopa
At Volopa, we offer the perfect solution for any business looking to implement stronger spend control processes. Our expense management tool is featured-packed and ideal for offering a centralised system for storing and tracking expenses throughout an organisation.
We offer prepaid business cards which can be used to control the spending of your teams at the press of a button. You can fund team members, set spending limits, freeze cards, allow them to attach receipts instantly for easy reporting.
Our software also integrates seamlessly with accounting systems such as Xero and QuickBooks, making it even easier to track spending across the business using your preferred accounting platform, produce financial forecasts, and make accurate projections.
If you want to take control of your spending and propel your business to the next level, get in touch with our expert team. We can walk you through the software and show you how it can be of benefit to your organisation. Implement your spend control processes with the help of Volopa today.
Spend controls are the processes and systems a business puts in place to properly manage, track and analyse purchasing and expenses throughout the organisation. Knowing where money is being spent and how effectively can help decision-makers to plan more effectively for the future of the business.
Implementing spend control processes is vital to improving the accuracy of budget forecasts. Understanding how money is being spent throughout the organisation and where the most ROI is being generated is key to knowing where the business should invest in the future.
Learn more about Volopa’s expense management software
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