With every new mask mandate and delayed return to office, the reality that the way we work has forever changed is becoming ever more apparent. But in many cases it’s not just a question of working from home and holding Zoom meetings. It’s a fundamental shift in approaches and processes.
As a chief accounting officer and more recently a CFO, I’ve arguably seen as much change over the past couple of years as the previous decade. While not all of it was directly driven by the needs of a Covid world, the combination of technical advancements and the requirements for fewer in-person interactions has seen finance departments undergo massive change. Automation has been a particular area that has seen huge adoption over the past couple of years. As finance teams quickly realized that manually processing, approving and reconciling paper-based expenses with a remote finance team was an incredibly long and cumbersome process, cloud-based automation solutions became a critical part of an organization’s technology stack.
But there has been an even bigger pandemic-driven shift that impacts all finance departments regardless of whether they are manual or automated. The manner in which corporate spend itself is made has also seen a significant evolution, which I don’t foresee being reversed when (or if) workforces return to the office.
Watch the webinar: The Transformative Power of Spend Optimization
Corporate spend has typically fallen into two camps: traditional T&E spend (flights, hotels, meals and so on) that is reimbursed to the employee, and invoice spend, which can be anything from office equipment or lease payments to supply chain materials, that is typically paid by a company’s AP department. But of late there has been an increase in a third category of team or departmental spend, which often has little oversight outside the specific team that made the purchase.
This departmental spend falls between T&E and invoice spend and is increasingly paid with a company p-card or personal credit card. It can come in lots of different forms, such as software subscriptions that need to be paid in advance with a card; online advertising; home office supplies; and, more pertinently as we proceed with hybrid working home, COVID test kits.
They’re not T&E expenses, but neither are they purchases that go through procurement or the AP invoice payment process. Thus I tend to think of this type of spend as “unmanaged” departmental spend. This may seem like a relatively subtle distinction, but it can lead to significant inefficiencies both in the approval-reconciliation-accounting workflow and the opportunities for savings and value creation.
I was recently on a webinar with Craig Lunsdkog, the finance director at Great Basin Industrial, which addressed exactly these issues. How can you most effectively control this unmanaged, often departmental, spend without making it incredibly onerous for both the buyers and the finance team? How can you obtain timely and accurate data about your spend that you can effectively analyze to improve efficiencies? And how can you find a way to channel this spend through corporate cards, in order to benefit from valuable rebate opportunities?
The first step that an organization needs to take is to automate both expense and invoice processes. Not only does this streamline operations for approvals and reimbursements, freeing up time for more value-driven activities, but it also enables more sophisticated analysis of both types of spend. This is absolutely essential in any spend optimization initiative - knowing who spends how much on what with which vendor. With this information in hand, finance leaders can determine where the biggest pockets of unmanaged spend occur and understand how this could be brought under the umbrella of managed spend.
One approach that I recommend for this is to leverage dedicated virtual cards. Each type of spend would be pre-approved, and a card number is then issued for specific vendor/recurring purchases. Not only does this mean that the company can benefit from card rebates, but with each purchase being tied to a single card, it makes reconciliation and accounting incredibly straightforward. Of course this isn’t the only way to control the “long tail” of corporate spend, but it’s arguably the approach that delivers the greatest value for the organization.
If you’d like to learn a bit more about how you can make your organization's processes stay up with the changing landscape of corporate spend, I encourage you to take a look at my recent webinar with Craig. You can watch it here. As we collectively finalize our finance departments’ plans for 2022, it’s a great opportunity to prepare yourself for the future.