April 23, 2020

Why Expense Management Software Can't Manage Distributed Spend

Now, more than ever, finance teams are laser focused on company spending. Economic shifts and budget cuts are putting increased pressure on streamlining purchasing and eliminating unnecessary expenditures.

Historically, the only way to get visibility into company spend was to have employees fill out expense reports explaining what they had bought and why. Managers would sign off on these reports to confirm that the expenditures had a legitimate business purpose, before sending them off to finance.

To this day, many companies leverage expense management software that digitizes this process, allowing employees to enter their personal and corporate card data and upload photos of their receipts. But this solution is far from ideal. With the increasingly distributed nature of business, driven by the growth of remote work and employee autonomy in the End User Era, the flaws of expense management software are becoming more apparent.

Expense management software offers only ostensible control and delayed visibility

The control offered by expense management software is only ostensible. These tools still require employees to use corporate credit cards or personal cards, which is the equivalent of handing out blank checks. In an effort to do their jobs quickly, employees may spend outside of policy, and finance has no way to stop it before money is spent.

Expense management software is inherently reactive. Employees submit expense reports at the end of the month, meaning finance teams only become aware of everything that has been spent weeks after the purchases have taken place. They can only react to spending after it has occurred and are stuck paying unexpected bills, issuing unplanned reimbursements, or having awkward conversations with employees when reimbursements are denied.

As a result of this retroactive workflow, finance flies blind most of the time and then is deluged with incomplete information at the end of the month. And even then, expense reports don’t show committed spend. Employees may have an agreement to spend a certain amount with a particular vendor, but finance might not find out until the invoice comes in months later. Because of this, finance teams often use outdated and inaccurate numbers to develop forecasts and strategic plans.

Expense reports require a lot of tedious manual work and frustrating back-and-forth. Even expense management software that digitizes this process still requires employees to navigate a separate system. The poor user experience frustrates employees and leads them to find workarounds that don’t comply with policy. Furthermore, relying on expense reimbursements may force employees to front personal funds for business purchases and wait days or weeks to get their money back, which causes psychological stress.

At a time when organizations are trying to rein in spending, finance can’t afford to unknowingly let money slip out the door. Today’s economy requires finance teams to maintain a tighter leash on the company bank account. Expense management software merely adds unnecessary bureaucracy and inefficiency to the purchasing process, without actually providing the necessary level of control.

Spend management software is a modern alternative to expense management

Distributed spend management software offers an alternative solution, purpose-built for bottom-up spending in today’s business landscape. Similar to expense management software, it facilitates employee purchasing. But instead of merely digitizing a flawed manual process, distributed spend management software changes the workflow entirely, to support the way businesses actually buy today—not the way they bought in the past.

Unlike its reactive counterpart, distributed spend management software obtains pre-approvals on all employee purchases, whether on a physical card, virtual card, or invoice. This establishes upfront controls and proactively enforces policy before any actual money has been spent. Furthermore, finance can set spend limits for each transaction, thereby ensuring that no one spends over budget. In sum, they can know and control what’s being spent before it’s spent.

Finance teams leverage spend management platforms to get clear visibility into spend. The software enables them to see transactions in real-time, monitor spend daily, and pull up-to-date reports at a moment’s notice. They can view committed future spend as well, rather than waiting for an invoice to find out about a previous purchase agreement. The proactive nature of spend management allows finance to intervene and optimize spending in real-time, as well as provide better reports and forecasts.

Because distributed spend management software provides all employees with controlled, policy-driven access to company money, individuals no longer have to chase down shared corporate cards or front personal funds in order to do their jobs. Collecting purchase data upfront eliminates expense reports, and a conversational policy engine guides employees through the process, increasing adoption. Overall, distributed spend management software offers a positive employee experience that empowers employees to spend with confidence.

Proactively fuel finance agility with spend management software

Expense management software digitizes a pre-existing process that no longer supports the way that organizations buy. Distributed spend management software not only automates the process, but transforms it for the modern era. Where expense management lags, spend management gets ahead. This allows finance to quickly and intelligently adjust spending and reallocate capital as the market shifts. When they can stop estimating based on what’s in the rearview mirror—and instead know with complete confidence where their company is in the present moment—finance teams can make smarter, faster decisions for the future.

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