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Managing indirect spend effectively through invoice automation
Wed, 6th Dec 2023

Employee-initiated spend is not new. It covers everything from travel expenses to smaller purchases of items such as maintenance, goods, and services needed for everyday operations. While these indirect purchases are operationally necessary, they don’t directly contribute to the bottom line.

This low-level spend, also known as tail spend, is often not actively managed. Though this is not an issue when purchase order (PO) processes are stringently monitored, employees are increasingly operating outside of PO processes, which means these expenses can quickly get out of hand if there is no clear visibility into what is being spent, when, and where. Without such insights, finance departments can’t accurately record and forecast committed spend or benefit from cost savings and compliance resulting from the increased spending visibility.

There are several underlying factors contributing to this shift:

  • Employee convenience

Most employees prioritise efficiency and immediacy. The traditional PO process, while systematic, can sometimes be viewed as slow and cumbersome, especially for minor or urgent purchases. Direct payments or card-based transactions offer a swifter solution, ensuring that operations aren’t slowed down due to procedural delays. It’s a win for operations but not necessarily the budget.

  • Business agility

Rapid decision-making and quick adaptations are essential for staying competitive. In many instances, waiting for the approval loops of the conventional PO system can be counterproductive. Indirect spend methods let departments respond promptly to immediate requirements, whether it’s procuring a critical software licence or addressing an unforeseen operational expense.

  • Post-COVID-19 laxity

Almost every organisation has experienced challenges brought about by the COVID-19 pandemic. For example, companies had to navigate remote working setups and disrupt supply chains, and to keep operations moving, stringent adherence to procurement protocols took a backseat. The emphasis was on continuity and survival. Since then, many businesses have maintained a more lenient approach to indirect spending, giving employees greater flexibility in procurement to ensure that remote working setups are adequately equipped and operational hitches are promptly addressed.

  • Static policies

One of the oversights in many organisations is a failure to periodically update and adapt procurement policies to new operating conditions. As the business world evolves, so should its rules and processes. However, many companies continue to operate with outdated guidelines that don’t reflect current market realities or employee needs. This misalignment can result in employees looking for alternatives to the traditional procurement process, leading to an increase in indirect spend outside the PO framework.

Addressing indirect spend challenges

By concentrating on employee-driven expenses and using digital tools to monitor every expenditure channel—including corporate credit cards, procurement cards, invoices, or cash payment receipts—organisations can achieve a holistic overview of their financial commitments.

The digital capture of receipts, for instance, can immediately provide insights into the invoice date, vendor details, amount, and purchase category. If the payment was made using a corporate or procurement card, this data can be compared to monthly statements received from banks. This gives accounts payable (AP) and procurement teams a comprehensive vendor map, equipping them with the capability to scrutinise expenses by vendor, category, and payment timelines. These insights empower businesses to negotiate more favourable terms with suppliers — based on factors like volume, delivery schedules, and payment terms.

Leverage invoice automation for increased visibility

Gaining advanced visibility into cash flow requirements and savings through payment terms and negotiated volume pricing begins with invoice automation and implementing corporate policies that adapt to low-level, indirect spending outside the PO process. All employee-initiated payments should be made with corporate cards, P-cards, virtual cards, or other payment instruments where the AP department automatically receives daily or weekly statements.

There’s an added bonus with employee satisfaction increasing as the burden of handling paper receipts decreases. Tax departments benefit, too, because expense substantiation is automated, which means employees no longer have to be chased to attach receipts to their expense reports. Finally, compliance audits are seamless because all the required information has been captured with minimal errors, and all exceptions have been flagged for further investigation and insights. 

By taking steps to better manage indirect spend more effectively through invoice automation, companies can ensure that their operations and workflows are optimised without compromising on security or compliance. With more visibility across expenditures, organisations can reduce both risk and cost while empowering finance personnel to drive business performance in other avenues.