Managing Employee Spend Strategically

Spend Matters welcomes this guest post from Guy La Corte, general manager, Americas, at Concur.

Employees have access to and are spending more of your company’s money across more spend categories using more payment methods than ever before. And for finance and procurement managers, it’s increasingly challenging to track spending in a world where employees are paying supplier invoices directly with company checks; booking and managing travel directly on their mobile devices; using their corporate, ghost, virtual, corporate or even personal cards for just about everything; and vendors are marketing directly to them with upgrades and offers. This employee-initiated spend has become the largest unmanaged spend category in almost every company’s financial program.

Outside of payroll, companies spend money in two basic buckets. The first is corporate-initiated spend, which is spend a company plans for, creates buying practices for, identifies budget for, allocates resources for and manages with an end-to-end procurement process. This typically includes things like equipment, real estate and IT purchases, among many other things.

The other bucket includes the previously mentioned employee-initiated spending— a widely distributed spend with minimal or no forethought or oversight from finance and procurement managers. Typically, companies identify projects and allocate dollars for corporate-initiated spend, but when it comes to employee spending, they’ve simply allocated an estimated lump dollar amount with little to no strategy, hoping the front line managers hit their targets and stay within budget. The following are just a few examples of how this can show up:

• VAT compliance fees
• Mobile roaming charges for international travel
• Mileage, often an estimated, unverified cost
• Non-resident state income tax for employees working in other states for long periods of time
• Home office expenses, such as office equipment and home Wi-Fi
• Ancillary fees for flights, hotels, event tickets, credit cards
• Event fees, such as added costs for trade show booth Wi-Fi, supplies, clean up and shipping

Until recently, it has been nearly impossible to strategically manage purchases made outside of the company’s centralized system. While finance and procurement managers prefer to manage spend in a centralized manner, this employee-initiated spending, by nature, is decentralized. Compounding this challenge is the fact that employee transactions tend to be small, frequent and managed across multiple backend systems—making them even more challenging to see and track. If you can’t see the spend, managing it is close to impossible. And when finance managers finally see it, budgets have been blown and the dreaded “halt all non-critical travel” email hits inboxes.

So, what options do finance and procurement managers have to gain the necessary visibility into all employee spending? An automated system is critical, but if you’re not equipped to understand, connect, and control spend that occurs across many internal and external systems, you can’t ensure that your employee spend is being managed strategically or effectively. For finance and procurement managers to effectively manage their budgets, here are some critical steps to take. With a better understanding of where employee spend is really happening and the categories it comes from, you can develop a strategy to manage it proactively and ultimately save your company money.

• Automate all spending. Moving from a manual or semi-manual process across all lines of employee spending will increase visibility and avoid error. Automating processes for expense, travel and check requests creates efficiencies that result in reduced costs.
• Embrace an open strategy. Travel vendors will continue to develop direct relationships with employees. You can’t stop this behavior, but you can manage it by digitally capturing all spend through the apps employees are already using. By connecting all of your travel, expense, purchasing cards and invoicing tools directly with suppliers, you can better manage spend in ways that will avoid penalties and gain savings.
• Go beyond automation to strategically manage spend. Technology that enables effective management of all employee spend in a centralized manner ultimately paves the way for smart, proactive, and customized management of your company’s spending.