Spend management 5 min read

The state of spend management: how companies spend

Patrick Whatman

Company spending is always an interesting topic. Businesses guard their cash carefully, and with good reason. If the cash runs out, so too does the company. 

We've already analyzed the amount that companies spend in our Spend Trends Report. So this time, we decided to find out the key methods they use, their biggest challenges, and a few other key nuggets.

We teamed up with the experts at YouGov to find out how today’s companies manage spending. The results include: 

  • The biggest pain points for finance teams
  • The level of visibility over spending that companies feel they have
  • The most common ways of handling and approving expenses
  • The most common types of operational spend

The results are just below in this article.

Who we polled

YouGov contacted more than 600 finance professionals over a two-week period from 17-23 February 2020. These finance teams were evenly distributed between Berlin, London, and Paris.

Here are the results in infographic form. Keep reading for more analysis below.

The state of spend management

As you've just seen from our infographic (above), business spending today is a mixed bag. The majority of companies feel they have a good idea of where company money is going (spend visibility). 

But there's still a large minority of businesses who don't. They struggle with poor tools and unclear processes, and still rely on an outdated view of "how things are done."

Let's look a bit closer at these results. Here are the 6 biggest takeaways from our survey:

1. 40% of companies have little or no visibility into how money is spent

Frankly, this should be alarming. Perhaps not every penny spent needs to be accounted for (although the taxman might disagree), but it goes without saying that companies should know where their money goes. 

In fact, this unclear approach is a great way to find yourself in legal trouble. As Julius Bachmann writes in Mastering Scale, "the authorities need your financial data in order to assess and audit the business. If you fail to keep adequate financial records, you won’t be able to complete tax filings and almost certainly will be penalised." [Read the full Mastering Scale series here.]

At the very least, poor spend visibility leads to a lot more work for your finance team. Because at some point - whether for a government audit or for investors - you'll have to provide evidence of company spending. And trying to reverse engineer this after the fact takes an enormous amount of work. 

Not to mention the fact that, if you don't know where the money's going, you invite serious expense and credit card fraud.

Finance teams know how important a healthy spend culture is to growth and sustainability. Which is why this figure is such a worry.

2. Only 27% of companies feel they have "full visibility" over spending

Of those 60% of companies that feel they have visibility over spending, only 27.3% consider themselves to have "full visibility." Which is good for them, but still pretty worrying for everyone else

The ability to monitor and manage spending impacts: 

  • Cash flow
  • Financial forecasts and models
  • Accounting accuracy
  • Tax and insurance payments

These are all fundamental. And in times of trouble, CFOs need this information at hand. Managing cash flow is usually the first step in any financial action plan.

You always need complete spend visibility. But you really need it during a crisis. And unfortunately, you often don't know just how important this is until it's too late. 

So if you're one of the 27%, good work. And for everyone else, now's the time to act.

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3. Nearly half of companies in Paris & Berlin report little or no spend visibility

We can take this idea of spend visibility even further. When we break down our survey by city (see the infographic above), we see that companies in Paris and Berlin actually drag the average down. 

Only 53% of companies in these cities report that they have at least "good visibility" over spending. Thus, nearly half of the companies surveyed have little or no visibility whatsoever!

On the other hand, nearly 70% of companies in London report having good visibility, which is better than average. 

We won't keep belaboring the point: companies must have full spend visibility if they want to be efficient and productive. All three cities have room for improvement, but Paris and Berlin have further to climb.

4. 1 in 5 finance teams still use manual expense reports to manage operational spend

It's astounding how many businesses still rely on tedious, tiresome expense reports to manage spending. We've already shared 17 surprising reasons that expense claims hurt companies. Here are just five of the most important: 

  • They reduce spend visibility. Finance teams don't know who's spent what until the end of the month (usually at the earliest).
  • They lead to lots of paperwork. Finance teams have to manually enter data and attach receipts, and employees hate filing them!
  • They're unfair on employees. They're forced to use their own money and wait for reimbursement.
  • They're rife with fraud. 85% of employees admit to having lied on their expense claims.
  • They're simply out of date. Today, technology makes the process faster, easier, and more secure. 

All of these are great reasons to get rid of your old fashioned expense claim process and join us in the present. 

5. Chasing receipts is the #1 frustration with managing operational spend

This is not entirely surprising. With so many companies relying on non-automated expenses - sending expenses by email or on real paper - it's easy for employees to lose or forget receipts. Which is a major issue for professional finance teams. 

Companies need expense receipts to keep accurate records. This impacts audits and the financial close process. So lost or missing receipts are a serious issue. 

But unfortunately, this issue doesn't impact employees evenly. Finance teams have to nag and beg other employees to follow these rules, because they're fundamental to good financials. But keeping receipts doesn't help a salesperson sell more, or an event planner organize better events. 

Which is why, unless you automate and digitize receipts, they will always be a burden on finance teams and slow down the reconciliation process

Ask any finance team how stressful January can be (when they close the books from the previous year). A good spend management app that collects and verifies employee receipts for them is simply a must-have.

6. Only 10% of expense approvals are automated

This may not seem too strange to many readers. It makes sense that spending should be approved manually by managers and finance teams, doesn't it? 

The big fear for many companies is that, unless each payment is approved manually, they can't control how employees spend. 

That may have been true in the past. But today, new payment methods let you set protocols and limits for employees. And as long as spending falls within those criteria, employees should be able to pay without asking for approval. 

Of course, this is a massive boost to productivity. Finance teams and managers don't want to have to talk about every little expense

It's also reflects core values that so many companies aspire to these days: trust and transparency. You should trust that your employees can act in the best interests of the business. 

At Spendesk, every single employee has a company card. We also have pre-approved amounts we can spend each month. Our finance team can see what we buy in real time, and if anything is out of order, we know we'll hear from them. 

Our team wears this as a badge of pride. We feel trusted, and we know that the company relies on us to be responsible.

And as a result, we don't have any problems with spending. Unlike large sections of the people we polled in this survey. 

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Patrick Whatman

Patrick Whatman is a content marketer and writer. He lives in Paris, loves music, and writes his own brand of cultural criticism for fun. Tweet him @mrwhatman where he mainly talks digital marketing, American sports and New Zealand trivia.