Over the previous year, the Covid-19 pandemic has clearly had a significant impact on the world economy. As a result, more than ever before, CFOs are putting pressure on their procurement departments to reduce expenses.
Although the financial consequences of COVID-19 are beyond your control, taking steps to rapidly and strategically implement spend control can mean the difference between life and death for your company. It’s also not enough to simply keep track of corporate expenses. Finance teams and management must take a step further to establish a plan to help the business flourish to fully succeed at operationalizing cash flow for growth.
Spend Management strategies to follow during the pandemic
Invest in a spend management software
During a time, when remote work is the modus operandi, Digital Spend Management software is a must-have. It allows for smooth communication. Plus, real-time notifications eliminate the need for lengthy email threads and Slack conversations, resulting in a more efficient and coordinated spend process for all parties involved. Remember to train personnel on new systems and processes as well: make sure everyone understands how to utilize the tools properly.
Roll out early-payment discounts
An early payment discount is a technique for businesses to get a cut on a supplier’s invoice in exchange for paying the provider ahead of schedule. To put it another way, a corporation pays less than the full amount due, while the supplier receives payment sooner than under typical payment terms. Early payment discounts provide the primary benefit of allowing suppliers to be paid sooner, which improves cash flow. It also lowers the possibility of nonpayment or late payment. Given the enormous strains that the COVID-19 pandemic has placed on suppliers, many of whom are experiencing financial concerns, now is an excellent opportunity to provide a complete early payment discount scheme to them.
Obtaining authorization before the development of a purchase order is smart and important at all times, but especially during a recession. Consider raising the number of approvals, signing authorities, or even making the CEO the final approver on all expenses, depending on the size of the organization. Finally, organizations might consider appointing the CFO or Controller as the gatekeeper for all material payments. Introducing stringent rules will indefinitely improve accountability.
Think about the bigger picture
Don’t be a victim of knee-jerk reactions when it comes to cutting costs. Cutting expenses indiscriminately across the board can leave businesses vulnerable to competition and displacement, even if they are resistant to recessions. Budget reviews in the early stages of a downturn are frequently limited to areas of variable spending that are simplest to control. Ignoring the larger picture, on the other hand, might have long-term consequences for your company’s health. Always remember the strategic goals of the company.
Scout for alternate vendors
Companies frequently try to prolong the payment timeline of their payables during difficult times. To enhance confidence and decrease potential supply chain difficulties, communicate and be upfront with all suppliers to preserve positive vendor relationships. If mutually beneficial agreements cannot be made, look for new suppliers who can provide better prices and determine how quickly new contracts may be signed. Contract renegotiation is a powerful tool for cutting costs and reducing risk.
What the future holds for Spend Management
Despite all of the rhetoric about digitization, the reality is that most spend management processes still rely on manual input and human participation to some degree. Manual input has several drawbacks, including delays in the process, a low frequency of updates, human errors, and a high cost-to-serve. As long as the process relies on human input, the system can only handle so much complexity before it breaks down. Players must use cloud-based spend management solutions to achieve a higher level of automation.
Access to more information
Spend Management has primarily relied on transactional data from ERPs and financial systems to create spend visibility and a few other information components such as volumes and prices. This is a quickly shifting situation. Market pricing, hazards, and social media feed, to mention a few, will be aggressively and automatically integrated into Spend Management in the future.
Ease of usage
The user’s role in managing spend will shift dramatically. Currently, the spend data insights seem to be fruitful to only those with pretty advanced analytical capabilities. Going forward, this will change. Consider Google as an illustration of how this will alter. Artificial intelligence-based suggestions will have the same effect on analytics. Ease of usage will drive faster industry adoption.
The role of big data
The majority of spend management is currently centered internally – an improvement over the previous year, a comparison to targets, and a benchmarking within business divisions. This is the backbone of today’s spend management solutions. This is gradually changing with spend management solutions providing users with peer benchmarking features. Any procurement metric can be compared to a peer group in this way. By leveraging the information available on the cloud, big data will be able to do risk identification far beyond what is currently possible.
Businesses are always on the lookout for spend management systems that empower people, enforce established business procedures, and provide deep visibility and insight into operations during times of volatility. Controlling costs and establishing a company-wide spend culture are proactive ways to keep your firm healthy during a downturn. A digitally transformed organization unlocks a lot of opportunity simply by analyzing its spend date, identifying patterns & risks, and predicting the future better. We are confident that executing the above strategies with an eye toward the future will transform your company’s landscape.