Spend management and expense management: two terms often discussed in business finance. They might seem interchangeable, but the approach behind each is distinct. And yet, they’re also not mutually exclusive. 

In this blog post, I’ll explain these two financial practices and why adopting a holistic and proactive approach to payments can yield better financial outcomes for your business. 

Spend management is more than just managing expenses 

Business expense management has long been in practice. So, if you own a business or handle its finances, you might be more familiar with the term "expense management" rather than "spend management." 

As the name suggests, expense management focuses on tracking and managing expenses made by employees on behalf of your business.

For example, expense reports may be required if an employee uses their corporate card to charge a business expense. Alternatively, formal reimbursement requests may be required if an employee charges an urgent business expense to their personal card.  

While expense management focuses on streamlining these financial processes in a reactive way, spend management deals with the bigger picture by proactively managing overall business spend.  

Business expense management is therefore a key component, but only one chapter of the spend management playbook.

Spend management focuses on managing, analyzing, and optimizing company spending. It is all about the big picture, taking a holistic approach inclusive of expense management’s narrow focus on employee-initiated spend. 

Adhering to a dedicated spend management strategy is key to controlling business expenses and managing spend in a proactive way.

It can be leveraged to inform higher-level decisions around approving spend, setting budgets, and cost management. And a good strategy will maximize business value.

Examples of spend management 

Spend management is often broken down into key focus areas to optimize spend, such as choice of vendor, services provided, outcomes, and impact on working capital.

Here are some examples to keep in mind:

• Supplier management: Tracking payments and service level agreements from suppliers to ensure they provide goods and services at an optimal cost and in line with business priorities.

• Contract management: Partnering with legal to monitor contracts as well as deals with suppliers and asset providers to ensure optimal terms.

• Inventory management: Examining the way inventory is manufactured, allocated, and sold in your business to ensure that levels are in line with demand.

• Product development: Analyzing the process of researching, developing, and launching products to ensure efficiency and effectiveness.

Key steps of spend management

The key steps of spend management include:

Planning

Setting targets for business spending on particular items, services, or investments based on current priorities and available capital. 

Tracking

Grasp the entire picture of spend by tracking actual expenses against the planned budget through a dedicated spend management platform.

Analyze

Examine spend data to spot trends, identify areas of over or under-spending, and find ways to save money or reallocate resources.

Improve

Based on your spend management insights, you may make changes to optimize business value, such as switching vendors or changing approval limits.

Here's an overview of how these steps work in tandem with the standard expense management process.

The benefits of spend management 

Correctly implemented, a spend management strategy can power the long-term success of your business by making the most of available capital, avoiding risk, and improving strategic decision-making.

More accurate financial data

By tracking data beyond business expenses, but also things like budget performance and supplier terms, you can better understand capital availability and find ways to make cash work even harder for your business. 

Increased operational efficiency

In-depth spend management can highlight areas where resources are being wasted or could be deployed better. By understanding the inputs and outputs involved, you can maximize your return on investment. 

Increased profits

Spend management highlights what your business should be making in relation to what it’s spending. By uncovering insights that drive new efficiencies, you can reduce spending and deploy resources to generate maximum profit.

Insights for business

The data that drives spend management provides a detailed picture of how well each business area deploys resources. By analyzing performance at a granular level, your finance team can find new ways to improve processes, go to market, or develop products that meet unique needs.

Reduced fraud risk

Fraud can cost your business dearly. Detailed spend management processes provide visibility and control to catch risks early, highlight suspicious spending activity, and set high thresholds for security before a payment takes place. 

Why should you implement a holistic spend management strategy in your business?

Expense management and spend management aren’t isolated practices; they’re interrelated components that work together to achieve better financial results. 

By tackling expense management through a comprehensive spend management approach, you will create a more proactive financial management system.

You will not only gain better control over business expenses, but you’ll also empower your team to proactively plan and optimize all spending for stronger overall financial performance.

Implement a spend management platform in your business 

Ready to tackle expense management through a proactive spend management strategy? 

Extend’s spend management platform can help! Get in touch to learn more.