Businesses need to spend money to make money. That much is obvious.
But where is your company actually spending its money? How much visibility do you have over monthly expenses?
Can you break down spending by department, category, and even employee? And do you have the ability to easily analyze and report on this spending data to pull out useful and actionable insights?
If your company is like most SMBs, there were probably a few no’s in your answers to those questions.
And if that’s the case, then now might be the perfect time to turn your attention to a practice known as spend data management.
In this article, we’re going to dive deep into the world of spend data management.
You’ll learn about what it is and why it’s important, common challenges SMBs face as they try to implement it, and powerful best practices that the most effective financial teams use to manage spending data.
What is the definition of spend data management?
Spend data management is the practice of collecting, analyzing, and managing all of the data your company holds related to its spending.
That includes information about purchases, such as purchase orders and invoices, as well as contracts and other formal documents you might have in place to manage supplier relationships.
Spend data management typically focuses on the following areas:
- Data collection: The gathering of data from various sources, centralizing it in a single place so that it can be analyzed.
- Data cleansing and enrichment: Cleaning, deduplicating, and standardizing data, as well as correcting errors.
- Data analysis: Creating and reviewing reports to identify patterns, trends, and outliers.
- Supplier management: Various techniques designed to improve spend visibility and cut costs, such as performance evaluation and contract negotiations.
- Cost reduction: Initiatives aimed at reducing expenses and/or improving the value received from company spending.
The overarching goal of all of these spend management practices is to gain insights into how money is being spent across the organization, and then to identify areas to create efficiencies, lower costs, or otherwise receive more value from vendors.
The importance of effective spend data management
Effective spend data management practices offer a number of important benefits to both SMBs and large enterprise organizations.
Quality spend data management means a greater ability to report on spending behaviors, since data is centralized, cleansed, and standardized.
This provides finance teams with better visibility of company spending, allowing them to create more effective and accurate budgets and forecasts, and to engage in strategic, data-backed planning.
The end effect here is greater profitability, and it doesn’t just come from the cost savings realized through effective spend data management practices (though that’s a big part of it) If finance teams can budget and forecast better, then they are more empowered to allocate investments that grow business profitability effectively.
Common challenges SMBs face with spend data management
Spend data management can be challenging for organizations of all sizes, but small businesses face some unique issues.
Your best defense against them is to learn what kind of challenges might present themselves.
Distributed spending authority
In many small businesses, there is no dedicated procurement or purchasing department.
Branch or department leaders, and perhaps even front-line employees, have the authority to purchase what they need and when they need it.
This makes for a more agile and flexible organization, but presents security and financial risk and doesn’t contribute to effective spend visibility.
Decentralized spend data
Since spending itself isn’t centralized, it's especially common that data related to company spending is stored in various locations.
You’ve got credit card statements, department budgeting spreadsheets, employee expense reimbursement forms, and so on.
When it comes time to analyze spending, gathering and organizing all of that data becomes a huge mountain to climb, one which sometimes stops the analysis process in its tracks.
Unclear purchasing policies
Decentralized purchasing power can be an effective strategy, but it only really works if those who have the authority to purchase have a clear understanding of what the company’s expectations are regarding purchasing.
This is rarely the case when it comes to small businesses.
In some cases, purchasing policies are non-existent. In others, they are inaccessible, or at best, unclear.
Best practices, tools, and techniques for more robust spend data management
Looking to improve spend data management practices in your own organization?
Consider implementing a few of these tools and techniques.
Centralize spend data in a spend management solution
The first step to take, whether you’re a small business or a large enterprise company, is to centralize all spending data in a spend management software platform.
Solutions like BILL Spend & Expense provide powerful spend management features, such as:
- Spend controls and policies
- Budgets and reporting
- Virtual employee spend cards
- Corporate credit limits
Integrate and connect your financial tech stack
Once you’re set up in an expenditure management tool, it’s time to connect the rest of your financial tech stack.
Your accounts payable automation tool, payroll solution, budgeting tools, employee expense reimbursement software, and so on, should all be integrated with your spend management platform.
Ideally, the spend management solution you choose will offer native integrations for the other software you’re already using. If not, a solution like Zapier can be appropriate for creating custom connections between tools.
Perform regular data cleanses
Messy data leads to messy results.
If it's the first time you’re pulling in all of your spend data into a central location, then you’ll need to do a bit of cleaning to standardize, deduplicate, and correct.
It’s also a good practice to establish a regular cadence for cleansing spend data. Quarterly is a good move for larger organizations, while SMBs can generally get away with an annual audit and cleanse.
Categorize and analyze
Here’s where you start digging into all of that (now clean) spending data.
Categorize spending by department, employee, line item, and period to understand trends and behaviors.
As you identify things you want to fix (such as overspending in a given category), you can set up automated reports in your spend management solution to keep an eye on progress as you implement policies to counteract spend issues.
Clarify your purchasing policies
Now that you’ve got the data side of things sorted, it's time to turn your attention to the spending itself.
Begin by establishing clear purchasing and procurement policies, and ensuring they’re accessible to all who have the authority to engage in company spending.
This should be led by the procurement department and sponsored by company leadership, though it should also involve consultation with department heads to understand their purchasing needs.
The last thing you want to do is roll out a process that doesn’t end up being followed because you don’t have buy-in from those who need to use it.
Document the processes you settle on in an accessible documentation platform like Notion, Slite, or Google Drive, so all purchasing authorities can access up-to-date documents as they need to.
Implement personal spending cards
Personal spending cards are an effective way to improve spending visibility.
Each person who has the authority to purchase has their own card, rather than there just being one card to serve the whole organization. This way, you can easily track and categorize spending by employee or department.
Virtual cards are a better move here than physical cards, allowing you to create a new card for each vendor to minimize fraud and protect from overcharges.
Invest in ongoing training and development
Finally, consider how employees can improve their skills and contribute to more effective spend data management.
As team members understand more about financial risk, the importance of clean, accurate data, and the reasons why certain procurement policies exist in the first place, you’re more likely to see compliance with spend management protocols.
Improve spend data management with BILL
Spend data management is an important practice for improving spend visibility, cutting down costs, and maintaining compliance with both internal and external regulations.
The most effective organizations centralize data in a dedicated spend management solution like BILL Spend & Expense.
BILL’s all-in-one expense management solution comes stacked with automated expense management features, business credit limits of $500-$5M, a dedicated mobile app, and virtual spending cards.
