Spend Matters welcomes another guest post from Shannon Lowe of Verian.
There’s no debating the fact that best-in-class P2P automation solutions can provide businesses of all sizes with greater efficiency, visibility, control, and savings. So why do some organizations, even after automating processes for purchasing, invoice processing, and expense reporting, still encounter problems like budget overruns and vague P&L numbers?
Most of the time, it’s because there’s a critical element missing that can help connect the dots. That missing element is an additional software component known as advanced budget tracking. The catch is, it’s not offered by all P2P software providers, so companies scoping out new automation systems and projects should be on the lookout.
How does it work? It’s simple. Budget data is loaded into the P2P software or linked in from an external system, such as a financial or accounting system, an ERP system, third-party budgeting software, or even Microsoft Excel. Authorized users can then take steps to associate expenditures with one or more appropriate budgets. Requisitioners, approvers, purchasing staff, expense report filers, check requesters and invoice processors are then able to confirm that funds are available before charging an expense to a particular budget.
Easy-to-understand messages display the status of each budget and the impact a potential expense would have on budgets directly on screen. Settings in the advanced budget tracking software prevent or require authorization for expenditures that would create a budget overrun.
In addition, the system can place a temporary “freeze” on funds in a budget when a purchase request is created so that a simultaneous purchase request would not attempt to spend the same funds. When a purchase request is authorized and a purchase order issued, the temporary freeze is lifted and the budget is encumbered. Many public sector and nonprofit organizations that receive government and foundation grants are required to practice this type of encumbrance accounting (also known as fund accounting) and can greatly benefit from implementing an advanced budget tracking solution.
At a minimum, advanced budget tracking capability provides quick and valuable insight into budget vs. actual expenses so organizations can avoid costly budget overruns.