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How to turn expense reporting into an optimisation activity

Expert expenses
By Simon Laskaj, Head of Australasia, Fraedom

One of the clear advantages of taking an expense management system (EMS) on board is the ability to see, at-a-glance, how effectively a company and its employees spend money.

Whether it’s large-scale procurement or daily incidentals, keeping a vigilant eye on spend can stop companies bleeding cash under the radar, as well as preventing that bleed from becoming a full-on haemorrhage.

But it’s easy to become complacent when faced with EMS reporting. At a basic level, that’s all it is – a report. Figures on a page mean nothing unless they are acted upon. Here are some top tips to make expense reporting a valuable business asset.

  1. Track progress

Identify a handful of expenditures that are a priority and mark their progress over time. Note any changes in spend levels and tie these changes back to the company or economic events. Is our organisation maximising the credit line facility for our commercial or procurement cards? When was the last rationalisation of suppliers, preferred and non-preferred, done? If there is no easily apparent reason why spend has risen, delve deeper to make sure the supplier is still competitive.

  1. Develop a process

It can be hard to carve out time for expense analysis in a packed schedule. But cost savings make a difference to every bottom line. Scheduling regular EMS investigations helps the task become a habitual part of good business management.

A good example of this in action came with an FMCG customer using Fraedom’s Expense Management System had a total credit line of $82million and determined that on average per month, only 14% of the existing credit facility was being used.   

  1. Embrace collaboration

Involve other departments in the analytics process. Finance departments don’t always understand different departments’ pressures, needs and strategies so collaborating with these departments will help in articulating spend patterns more accurately across the business. With collaboration, this same FMCG organisation mentioned above, would not have been able to introduce procurement cards for 90% of invoices under $2500; 2,171 invoices. 

  1. Avoid knee-jerk responses

In its article on optimising your vendor spending, Gartner has five steps to help you get on top of it.

Step one is to analyse your spending and prioritise the sub-categories where you spend the most, which it says, will enable you to rationalise them. Following on from this it suggests that you develop a plan for each category that will entail looking at what you have spent and what you plan to spend with each one. Using this you can then do a comparison with other vendors to make sure that you are getting the best possible deal.

The next step is to share your plan with vendor relationship owners, stakeholder and executives. Without their buy-in, no plan will work, but you will need to be able to show measurable returns and a strong business case.

Steps four and five suggest a full analysis of suggested vendors, a strategy for the transfer of supply to minimise disruption to the business and then an agreed manner for executing the new contracts.

All in all, the underlying message from Gartner, when it comes to even thinking about changing your supplier, is a word of caution: don’t rush any decisions and more importantly, decisions are best made with accurate data.

This is because the whole process may well on first observation show an escalation of cost from a supplier, rather than a perceived reduction. However, this must be taken in context. Could this be because the level of service support increased, have the volumes involved grown and, hidden in that growth, are also volume discounts?

  1. Mandate adoption

Expense reporting is only fully effective when we can see the whole picture. If only part of the organisation participates, it is difficult to maintain full control over spend. Gain support for expense reporting by highlighting the advantages to different stakeholders in the business. Automation of expense reporting speeds up financial management. Providing employees with easily tracked commercial cards or virtual cards gives them autonomy when making purchases and removes the financial and admin burden of filing expense claims.

The bare facts from expense reporting can tell a range of different stories and by understanding those stories, companies can optimise their spending and make sure they are driving the best value for money.