Every business prioritizes revenue growth, but with the growing employee size comes the additional expense of apps and tools. This further leads to an overlooked crucial aspect: SaaS spending efficiency.
This is relevant for fast-paced and steady-growth businesses, where optimizing spending is important for long-term success.
So, organizations have adopted business spend management to save money, time, and resources. Business spend management functions as a financial detective, analyzing every aspect of spending and streamlining the SaaS landscape.
As per Fortune Business Insights, the global business spend management software market is expected to rise to $39.05 billion by 2029. This shows that organizations like yours actively adopt business spend management practices to optimize expenses.
Read on to discover the significance of BSM, its challenges, and strategies for managing and maximizing corporate spending.
What is business spend management?
Business spend management is a strategy or approach that organizations use to control and optimize their expenses. It involves the entire spend lifecycle, from sourcing and procurement to payment and expense management.
The modern BSM approach uses cloud-based software to track, manage, analyze, and transform how businesses manage spending and supplier relationships. Unlike traditional methods that rely on manual processes, you can now use a single platform for sourcing and buying apps and managing contracts, invoices, staff expenses, and payments.
Collaboration between finance and procurement teams, including feedback from department executives, is critical to spend management, especially in decentralized purchasing situations.
It strives to enhance profitability by optimizing costs and extracting maximum value from business expenditures, going beyond mere spending control.
Importance of business spend management for SMBs and Enterprises
According to the U.S. Bureau of Labor Statistics, 65% of businesses fail within their first ten years due to poor financing and cash flow. Business Spend Management can help you avoid this pitfall.
At its core, this strategy assures financial viability by reducing waste and allocating funds to strategic growth activities. BSM supports efficient collaboration among diverse departments by providing transparent control and streamlined procedures, increasing overall organizational health.
Careful expense management not only provides stakeholder stability but also empowers firms to make educated decisions in the face of problems such as supply chain disruptions and inflation.
As CFOs increasingly turn to digital solutions, business spend management stands out as a critical tool, enabling cost reductions and providing a dependable source for detailed spending insights. In simple terms, it allows businesses to handle financial complexities, encouraging resilience and long-term success.
Difference between spend management and expense management
While "spend management" and "expense management" are frequently used interchangeably, they represent two separate approaches to business spending management.
Expense management is an HR function, while spend management is the finance and procurement team’s responsibility.
Business spend management framework
A strong framework for business spend management is required for successful financial governance. Let's look at the main components that make up this framework.
Components of BSM
1. Spend Analysis
Spend analysis is the foundation of effective Business Spend Management. This component entails thoroughly examining and evaluating all expenses within a business. The following are essential features of spend analysis:
- Recognizing Spending Patterns
- Analyzing cost-saving opportunities
- Increasing budget control
- Maintaining financial goals and compliance
Procurement is a critical pillar in the BSM system. This component concerns the systematic buying of goods and services necessary for business operations. Procurement aspects that are important to spend management include:
- Finding dependable vendors
- Conducting negotiations and managing contracts
- Acquiring benchmarking data to negotiate better
- Managing app usage risks (if any)
- Fostering positive vendor relations
3. Invoice Management
This includes meticulously handling vendor invoices from receipt to payment. The following are essential aspects of invoice management:
- Streamlining approval procedures
- Ensuring payment accuracy
- Using software to expedite processing
- Deploying fraud detection measures
4. Expense Management
Expense management is another critical component of BSM that focuses on monitoring and controlling employee expenses. Expense management entails:
- Implementing cost-cutting measures
- Setting up expense approval workflows
- Introducing automated systems to improve claim processing efficiency
Who uses business spend management?
Traditionally, procurement teams were in charge of spending management, but business spend management now encompasses every department in various phases of the spending cycle.
Let's look at how leaders in different sectors use business spend management software.
- CFOs (Chief Financial Officers): CFOs seek to boost profits. They require an in-depth view of spending data, but traditional methods make it difficult. This tool make things easier by centralizing and analyzing data, allowing CFOs to control spending better, ensure compliance, and reduce risks.
- Chief Procurement Officers (CPOs): With uncertain markets, CPOs proactively manage purchasing to limit costs and support supplier variety. It aids in gaining visibility into spending categories, monitoring compliance, and simplifying purchasing operations.
- HSS (Head of Strategic Sourcing): HSS leaders use business process management systems to track sourcing needs, create plans, and negotiate contracts for goods and services. They ensure that savings from negotiations are recovered during actual purchases, and they monitor risks and performance.
- CSCOs (Chief Supply Chain Officers): CSCOs oversee demand, product availability, and environmental, social, and ethical standards. This tool provides a comprehensive supply chain perspective, with features like a digital twin for risk-free environment testing.
- CIOs (Chief Information Officers): CIOs are responsible for optimizing core operations. They seek business spend management software for simple setup, faster operations, and optimum data analytics. It assists in connecting data, making it more user-friendly, and helping in choosing technology that interfaces easily with the company's processes.
Challenges in business spend management
Spending management takes time and effort. Without a spend management system to centrally manage expenses, inefficiencies can easily get overlooked, leaving businesses at risk.
Inefficient spend management can be disastrous for a business, as external spending can comprise 40-80% of a company's total cost.
Here are the top challenges businesses experience when trying to manage their expenditures more effectively, all of which BSM software is intended to handle.
1. Inadequate insight and Data Accuracy
46% of finance leaders lack complete visibility into spend data across the company.
One of the most significant challenges in business spend management is a lack of insight into spending activities, which is compounded by data accuracy issues. Without a unified system, multiple data sources add to mistakes, impeding effective decision-making.
It addresses this by unifying data sources, assuring consistent formats, and providing real-time insight. As a result, a clear, accurate, and consolidated spending perspective allows for informed decision-making.
2. Manual Processes and Inefficient Systems
The reliance on manual processes, often involving spreadsheets and emails, is a significant impediment. These inefficiencies result in errors, miscommunications, and hampered reporting capabilities.
It implements automation, streamlining processes to improve accuracy and efficiency and laying the groundwork for data-driven decision-making.
3. Decentralized Procurement Processes
The decentralized pattern of spending, in which business divisions make purchases separately, complicates expense tracking. Increased costs and a lack of centralized control emerge from this decentralized approach.
It helps implement a centralized procurement systems, which streamline purchasing activities, promote collaboration, and provide a consistent platform for oversight. This centralized control improves cost management, policy adherence, and strategic alignment.
79% of IT leaders report their organizations waste money on unused SaaS subscriptions.
4. Compliance Issues
Ensuring that spending policies and regulations are followed is a continual concern. Manual procedures and decentralized systems sometimes fall short of enforcing compliance, leaving businesses at risk.
Business spend management tools implement robust methods to ensure compliance, lowering the possibility of regulatory difficulties and providing an organized approach to adherence.
5. Tail expenditure Issues
The often-overlooked area of tail expenditure, which consists of low-value purchases, can become a substantial burden if not managed properly.
BSM solves this by improving processes and ensuring that even minor expenditures are consistent with the overall spending strategy. This comprehensive approach ensures that no part of spending is overlooked or ineffective.
How CloudEagle can help you overcome BSM challenges?
CloudEagle completely solves Business Spend Management challenges by offering a variety of features that assist with cost minimization, increased visibility, and faster operations.
Here are some ways CloudEagle, a robust business spend management software, can assist you in overcoming challenges:
1. Complete Spend Visibility
CloudEagle provides a consolidated platform that gives your business complete visibility into its spending. Through its App Discovery feature, you can discover all applications in use, including unused apps that can contribute to shadow IT. This visibility provides you with a thorough understanding of your complete SaaS stack.
2. Tail spending Analysis
CloudEagle enables you to undertake tail spend analysis by providing detailed insights into your procurement and hidden expenses. The platform finds underutilized, duplicate, and free applications, allowing you to save money by eliminating the costs associated with unused licenses or redundant apps.
3. Streamlined Procurement Process
CloudEagle's no-code procurement workflows streamline the procurement process. By automating alerts to relevant stakeholders via Slack and email when a purchase request is submitted, these workflows improve transparency, alleviate bottlenecks, and save time. This ensures a more collaborative and expedited purchasing process.
4. Contract management
CloudEagle's Contract Management feature streamlines contract and invoice management. You can extract metadata from contracts, arrange details, and store records in a single location. This feature helps to prevent the loss of crucial information by providing simple access to contract details when needed.
5. Assisted Buying Support
For businesses with small procurement teams or limited bandwidth, CloudEagle's Assisted Buying feature extends your team. They analyze user demands, conduct market research, utilize benchmarks, and negotiate with vendors to achieve optimal product procurement at the best price. This support assists in making informed and cost-effective purchase decisions.
6. Enhanced Vendor Management
CloudEagle's AI-powered vendor recommendation system makes comprehensive vendor research easy. You can make informed purchasing decisions by comparing costs, features, and reviews. The platform allows for the centralized management of all vendors and associated spend, contributing to effective vendor management.
7. Automated Renewal Workflows
CloudEagle proactively manages SaaS license renewals with automated renewal workflows. Users are notified via email and Slack 90 days before renewal deadlines, allowing them to monitor usage and negotiate effectively. This feature aids in the prevention of unexpected renewals and enables smart decision-making.
In conclusion, Business Spend Management is a strategic approach to increasing competitiveness by reducing waste, mitigating risks, and optimizing employee efforts.
CloudEagle, a powerful Business spend management software, plays a critical role in integrating expenditure data across silos for centralized and standardized analysis. CloudEagle enables financial teams to manage expenditures more effectively by providing real-time spend visibility, policy enforcement, and usage insights.
CloudEagle emerges as a vital tool for finance managers in the competitive financial landscape, enabling effective spending practices that optimize value for money and contribute to the business's overall success.
Book a demo today for a streamlined financial landscape!