Spend management is often thought of as interchangeable with expense management, but it goes far beyond that. 

In this guide, I’ll explain what spend management truly is, why it’s so important, and how you can implement it successfully in your business. I’ll also share best practices to help you get the most out of your strategy and ensure the company operates at peak performance.

Let’s get started. 

What is spend management? 

Spend management is a proactive approach to organizing, optimizing, and controlling company spend. Unlike simple expense tracking, spend management encompasses a broader range of activities, and when done well, it allows businesses to: 

• Assess expenses before they happen;
• Allocate resources more efficiently and cost-effectively;
• Eliminate overages at the end of the month;
• Make smarter financial decisions; and
• Adapt financial strategies in real-time.

Why is it important? 

Spend management is crucial because it directly impacts a company's financial health and operational efficiency. Without it, controlling expenses, uncovering savings opportunities, and reducing financial risk become far more challenging. A well-executed spend management strategy—powered by data-driven insights and automated processes—keeps businesses agile and ready to drive sustainable growth and profitability over the long term. 

Key components of spend management

Since spend management is a holistic financial practice, it involves multiple interconnected components.

Let’s take a closer look at each of them.

1. Card program management 

Card program management involves overseeing and optimizing how company credit cards are used to ensure efficient and secure transactions. This includes issuing virtual credit cards from physical corporate cards, setting spending limits and expiry dates, and monitoring usage to prevent fraud and unauthorized purchases.

2. Expense management 

Although it's easy to confuse spend management and expense management, they’re two different practices. Expense management focuses on processing, paying, and auditing employee expenses after they take place. It's a reactive process that falls under the broader umbrella of spend management and ensures that employee reimbursements and business expenses are compliant, properly documented, and authorized.

3. Strategic planning

Strategic planning ensures that all spending aligns with a company’s long-term financial goals and objectives. It involves setting financial targets, creating detailed budgets, and forecasting future spending. As a forward-thinking practice, it allows businesses to look ahead and identify what they need to achieve financially in order to meet their growth goals.

4. Vendor management

Vendor management is all about maintaining good relationships with suppliers to make sure you’re getting reliable products or services at the best price. This includes choosing the right vendors, negotiating deals that work for both sides, and monitoring performance to ensure they meet your expectations. 

5. Risk management and analysis

Risk management is about identifying potential financial risks, like fraud, non-compliance, or budget overruns, before they turn into bigger issues. Catching these risks early is key, as it allows your team to take action and prevent them in time before the company experiences significant financial losses. 

The spend management process 

Now that we’ve explored the key components of spend management,  let’s look at how to put them into action.

The following steps outline the process you should follow to manage spend in your business. 

1. Plan: Determine how much the company wants to spend on different items or services. Ask the question: What’s most important to drive toward our near-term strategic goals? (Think revenue goals, market expansion, etc.) From there, create the budget and determine where money will flow. 

2. Track: Monitor actual expenses against the planned budget. Regular tracking will help you identify areas where the business may be overspending or underspending to adjust accordingly. 

3. Analyze: Pay attention to the spending data you collect in the previous steps. Study spending trends, identify areas of waste, and look for opportunities to save money and better allocate resources in the future. 

4. Categorize: As your business grows, you will incur a number of costs, including recurring and non-recurring. Make sure you categorize your expenses so you can better budget, forecast, and make strategic decisions about resource allocation. When you know which costs are fixed and which are variable, you can better predict future expenses and make adjustments when necessary.

5. Control: Adopt policies and procedures to ensure expenses always stay within budget. This may include setting limits on purchase card usage or requiring pre-approval for large purchases. By implementing these controls, you can ensure the business is not overspending on unnecessary items or services from vendors. A good way to get ahead of spending control is to pay vendors with virtual credit cards.

Common challenges of spend management

While the spend management process is straightforward, it's not uncommon to encounter challenges when putting it into practice.

Below are some of the most frequent obstacles you might encounter and how to fix them.

• Disorganized spending and tracking: Without a centralized system, it’s challenging to manage and track expenses by department or category. Teams may use different, incompatible systems to track spending, leading to data silos and fragmented information that’s hard to consolidate and understand. This lack of visibility can also cause multiple departments to make similar purchases unknowingly —a classic example of unnecessary overspending.

• Human error: Manual processes leave more room for mistakes. If employees or finance teams enter spending data by hand, errors are bound to happen. And as anything small that compounds, these seemingly minor issues can lead to bigger budgeting and financial planning issues down the line.
• Lack of real-time data: Without real-time visibility into spending, your finance team will struggle to make quick, informed financial decisions. These delays can lead to missed saving opportunities, inefficient use of resources, and budget overruns that catch you by surprise at the end of the month.

How to fix it:

Implement the right technology: Invest in spend management software that automates tracking and reporting. A spend management tool like Extend can help you manage spending, automate manual tasks, access real-time insights into spending patterns, and identify areas of waste and opportunities for cost savings. 

• Lack of compliance: Implementing and enforcing spending policies across the organization can be difficult without effective communication and a transparent process. If employees aren’t fully aware of company policies, it's only a matter of time before unauthorized spending and financial inconsistencies occur. 

How to fix it:

Tap into employee education: Teach employees about proper budgeting and financial planning techniques. Establish a clear spending policy and provide easy-to-follow guidelines that outline permissible expenses, spending limits, and approval processes. Also, consider issuing virtual credit cards for employees instead of relying on physical credit cards. This will not only empower them to move forward with budgeted projects but also protect the company from fraud and non-compliant spending.

• Vendor mismanagement: Not maintaining strong, transparent relationships with suppliers can cost you. Poor negotiations, missed savings opportunities, and strained partnerships will inevitably make it harder to control costs and reach the company's financial goals.

How to fix it:

Foster collaboration between both parties: Discuss goals, terms, and strategies regularly and keep the lines of communication open. There’s no such thing as over communicating when both sides work to ensure the partnership is mutually beneficial. Treat your vendors as partners who can help you scale, not just contractors fulfilling a task. This kind of teamwork strengthens the relationship and leads to better results for everyone involved.

Benefits of spend management

By setting up a well-structured spend management strategy, following the outlined process, and addressing challenges as they arise, your business will benefit in a big way. 

Here are just some of the key advantages:

1. More savings: You’ll save money by identifying and eliminating unnecessary expenses, negotiating better terms with suppliers, and leveraging bulk-purchasing discounts in your business. 

2. Increased control: By closely tracking expenses, you can ensure spending stays in line with the company budget. You’ll gain better control over your finances, reduce overspending, and make smarter decisions about company resources.

3. Better visibility: With better spend management comes real-time data and insights into spending patterns. This will help your finance team have a clear view of spending so they can better allocate resources, anticipate needs, identify opportunities, and enable better financial decision-making.   

4. Improved efficiency: Automating spend management processes cuts down on the time and effort needed for manual tracking and reporting. This frees up your finance team to focus on more strategic work instead of getting bogged down by administrative tasks. Plus, with fewer manual steps, you’ll reduce the risk of human error, ensuring your financial data is more accurate and reliable.

5. Heightened security: With a solid spend policy, real-time visibility, card spending limits, and pre-approvals for large purchases, you’ll reduce the risk of fraud and authorized spending. All while fostering transparency and accountability among your team and key stakeholders.

Streamline spend management with Extend

Spend management done right improves processes and eases cash flow management for everyone involved. Gain real-time visibility and control over team spending with a dedicated spend management tool on your side. 

Get in touch to learn how Extend can help you streamline and improve your spend management strategy.