For growing companies, there’s nothing worse than a cash flow shortage – except maybe a cash flow shortage when business is booming. When you need to be investing every spare dollar back into the company to keep growth on track, you can’t afford to be laissez-faire about any aspect of your budget or spending.
And yet one area consistently proves to be a blind spot for companies. That area is indirect spend, otherwise known as the myriad of goods and services your company must purchase that aren’t directly incorporated into your product – everything from small office supply orders to expensive vendor contracts. While growing companies watch revenue and direct spend like a hawk, their bottom lines are being siphoned by the increasing volume and cost of these indirect expenditures.
Why is indirect spend so important and yet so often overlooked? Most companies understand how critical it is to control these expenses, but with an outdated procurement process, it’s nearly impossible to do. Without an automated system to provide transparency and order, you’ll drown in a sea of maverick spending and contract leakage. Meanwhile, antiquated workflows, complicated spreadsheets, and a clunky “req to check” process consume everyone’s time and attention.
For small companies, managing spend may be simple. But the more quickly you grow, the faster indirect spend gets out of hand – and the more it affects your company’s bottom line. The good news is that there’s a simple, easy way to rein in indirect spend. By ditching the spreadsheets and upgrading to an automated procurement system, your company can reclaim that cash and add the savings right to the bottom line.
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Here are five signs that the time is now.
1. Maverick spend is draining your bottom line.
We’ve all been there before. You need something – an office supply or a service – in order to do your job, and you need it now. Rather than deal with the hassle of your company’s procurement process (otherwise known as “emailing and waiting”), you just go out and buy whatever you need and stick it on your expense report. After all, the item was relatively inexpensive, and you don’t do this very often. No harm done, right?
This kind of maverick spending is innocent enough in a new company, but as your organization grows, these expenditures multiply swiftly and stealthily. A slow, frustrating spend management process only exacerbates the issue by encouraging employees to circumvent it – making it impossible to control for cost and quality. Smart companies leverage their corporate spend to negotiate discounts with the best suppliers and vendors. But without a centralized system in place, how can you make sure everyone is funneling business through these contracts?
When you upgrade to an automated procurement system, not only do you tame the wild west of maverick spending, but you also save money and increase quality by eliminating contract leakage. The faster and easier you can make the spend management process, the more likely employees are to adopt it. A system that allows for electronic workflows and automated approval routing reduces the time between requisition and delivery of the requested goods and services. And because the system ensures that everyone is using preferred vendors and suppliers, you can rest assured that cost and quality are automatically controlled.
2. Accounting is tired of being the watchdog.
Fragmented indirect spend may be a hassle for every team, but if you work in accounting it can be a downright nightmare. When you have to consult multiple people, documents, and spreadsheets just to make sure each invoice is correct, every transaction is a frustrating puzzle.
When procurement is handled through email and spreadsheets, it naturally causes problems between accounting and other teams because the former is forced to play the watchdog. It’s up to you to ensure that people got the correct approvals, that the vendor delivered on the goods or services, and that a preferred provider was used. And since you can’t see people’s emails (or read their minds), you have to open an investigation every time a new invoice comes through the door, which isn’t enjoyable for anyone involved.
The beauty of an automated spend management system is that all of this information – from requisitions to approvals to POs – is all in the same place, and it can be viewed by everyone in the company in real-time. For the finance team, this means a painless invoice close-out process. For everyone else, it means no more feeling defensive about spending – and no longer dreading the calls from accounting.
3. Marketing spends more time tracking down invoices than marketing.
If you work in marketing, you know that one of the biggest challenges is knowing where you stand with your budget at any given point. What has the team spent so far? What POs are outstanding that still need to be paid? What’s the cost-per-lead or other ROI for a particular campaign? If you know the answers to these questions, you can quickly adjust spending to do more of what’s working and less of what’s not, making your marketing even more efficient.
But without a good purchasing system in place, tracking down all this information is not easy. POs are in a shared document or one person’s spreadsheet, while invoices live in a separate accounting system, so there’s no way to quickly reconcile the amount you’ve committed versus the amount that’s actually been paid. And without a transparent approvals process, you’re fumbling in the dark when it comes to keeping up with all the indirect spend from your team.
An automated purchasing system solves this problem by giving you immediate, accurate visibility into spend. You get a real-time view of accrued versus actual spending for your entire team – plus all the data you need to calculate ROI on the fly – which means you can spend less time figuring out where you’re currently at with your budget and more time marketing.
4. Your vendor relationships are on the rocks.
Successful companies understand the value of great vendor partnerships. Whether they’re providing you with goods or services, vendors provide the elements to help your organization run smoothly. And if you find good vendors who quickly deliver high-quality services, you want to nurture and maintain those relationships.
Unfortunately, maintaining vendor relationships is not easy when payments are delayed or contracts aren’t used. These issues are compounded by an opaque procurement process, because if you can’t easily see your approved vendors and what’s been purchased but not invoiced, you lack the information you need to manage these relationships.
With clear visibility into who you’ve bought from and what’s been invoiced, you can prioritize and leverage that information to negotiate better contracts. And with visibility into what you’ve bought and what you owe, you can make sure vendor payments happen on time.
5. Your team refuses to adopt your current system.
A manual spend management process is clearly rife with problems, but even companies that have systems in place can face challenges. The biggest challenge is lack of adoption among employees. And if you can’t get employees to use the system, you’re back in the wild west.
Getting your people to embrace a new system is difficult under the best of circumstances. Not only do they have to learn how it works in the first place, but they also have to remember how it works every time they use it – no small feat if they’re only using it periodically. Add to that a separate login and password, and you’ll have a system that everyone loves to hate.
If your company knows spend management is important enough to warrant having an automated system dedicated to it, why not choose a system that’s going to be easy for employees to adopt? FinancialForce Procurement is not a stand-alone tool, but rather an extension of the Salesforce platform. So if your employees use Salesforce already, there’s no need for a separate login, multiple screens, or complicated new systems to learn. And no more forgotten passwords.
Plus, the social networking aspect of FinancialForce adds an extra layer of transparency and expediency to workflows and approval processes. Employees can use Chatter conversations about requisitions and POs to ask questions (e.g., “is this an approved vendor?”) and give answers (e.g., “this dealer has the best price”). People can communicate in a way they’re accustomed to, while everything is automatically captured in an audit trail.
If your company is growing, you understand how important it is to manage cash flow and guard your bottom line. With so much of your budget going toward indirect costs, you need to rein in maverick spending, prevent contract leakage, and optimize your req-to-check process. The best way to do this is through an automated system like FinancialForce Procurement.
With FinancialForce, you can monitor budget and cash flow, speed up the req-to-check process and significantly reduce indirect costs – with the savings going straight to your bottom line. Electronic workflows and automated approval routing make it faster and easier for employees to get what they need, while also ensuring spend goes to low-cost, high-performing suppliers and vendors. And with real-time visibility into every step of the process, you can quickly monitor cash flow, see where you’re at with your budget and accurately plan for future campaigns. When is it time to gain control of your spend? For most companies, it’s never too soon.
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