Spend on travel and expense is often one of the largest for organizations, typically falling second behind payroll, according to Jupiter Research.
Low-level spend, also referred to as tail spend, generally refers to the bottom 20% of a company’s spend. Typically not actively managed, it covers categories such as maintenance, operations, print services, home-office expenses, packaging, facilities management, and supplies, to name a few. Tail spend usually involves a large number of suppliers.
What is common about tail spend and travel spend is that both are mostly controlled by the employees. Employees decide what to buy, when to buy, whom to buy from, how much to pay (of course, subject to company guidelines). We refer to this as employee-initiated spend.
Tail spend is not always actively managed but has an impact on corporate financial performance.
Pivot focus to spend channels
In a 2013 paper in Operational Strategy in Procurement, Capgemini Consulting wrote, “Spend channel optimization focuses on understanding the most efficient means (cost to serve) by which to procure goods and services – catalogue, PO, P-card [purchasing card], T&E and others.”
In this article, we define spend channels as the various ways in which a company’s suppliers and service providers are paid.
When you focus on employee-initiated spend and use digital technologies to track across all spend channels – corporate liability cards, purchasing cards, purchase orders, invoices, and receipt for cash payments – you have a complete map of committed spend. Starting with the automated, digitized capture of receipts, you can extract key information such as date of invoice or charge, vendor, amount, location or address, category of item purchased, and other details.
If paid by corporate card or P-card, this information can be cross-referenced to the monthly statements from financial institutions. This creates a supplier map to help your procurement and accounts payable departments analyze the amounts spent by vendor and category and the timeliness of order, delivery, and payment. In turn, this allows you to negotiate better supplier terms based on volume, timing, and payment schedules.
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In addition to providing insight into the potential cost savings in a conventional way, you can use this information to drive cost savings and control via compliance. If the proper spend channels are not used by employees or corporate policies for specific spend categories are not followed, corrective actions can be used to ensure policy adherence and eliminate wasteful or fraudulent spending at the source.
There’s much more we can do by focusing on the spend channels employees use to pay for tail spend and travel spend. Below are a couple of examples:
- Gain advance notice before expense reports are submitted or invoices are approved for payment: When employees pay for products or services using corporate cards or P-cards, the amounts charged can be reported for forecast and budget accrual purposes within a few days of incurring the expense. Since the financial institutions provide corporate cards or P-cards statements on a more frequent basis than employee expense reports are submitted or invoices processed, a more complete view of already-incurred costs is available.
- Reduce the effort employees must put into submittal of expense reports and invoice data entry: As most employees and travelers will tell you, transcribing information from multiple receipts into expense reports is what takes the most effort in the creation and submittal of the reports. Travelers would rather be doing more productive things than documenting where they spent the company’s money. And employees who receive paper or PDF invoices from suppliers would rather spend less time transcribing and categorizing items from the invoice, as required by the company’s data-entry and compliance process.
Fortunately, there are tools and services available today that help companies electronically capture these documents and, through machine learning and processing rules, categorize the data that otherwise would have to be completely done by the employee. By adopting technologies that assist the employee in the entry and categorization of travel and low-level spend, employees need only validate that the electronic capture and artificial intelligence-assigned categories are correct. This speeds up the process of expense-report submittal and invoice processing, thus providing the finance department earlier visibility into employee-initiated spend.
Gain visibility to manage employee spending
Low-level and travel spend are generally initiated by employees. Whereas travel spend is closely watched by finance, as one of the largest contributors to a company’s expense, tail spend typically consists of 20% of a company’s total spend – but is spread out across 80% of a company’s suppliers. In both travel spend and tail spend, the value of each transaction is low compared to salaries or volume purchases. Companies’ procurement and finance departments often pay little attention to low-level spend transactions, to the numerous vendors issuing invoices or receipts associated with those transactions, and to the form of payment used.
It makes sense to implement corporate policies that require all employee-initiated payments be done with corporate cards, P-cards, virtual cards, or other payment instruments where the company automatically receives daily or weekly statements. Companies can gain advanced visibility on cash-flow requirements as well as savings through negotiated volume pricing and payment terms. Employee satisfaction increases as the burden of handling paper receipts is minimized. And the company tax department is pleased because expense substantiation is automated, minimizing the need to chase individual employees who have not attached receipts to their expense reports.
Learn more about how SAP Concur can help your organization control employee spending.
For more on this topic, read “Use Corporate Cards And P-Cards To Gain Visibility And Control Of Employee Spend.”
This article originally appeared in the SAP Concur newsroom and is republished by permission.