How do finance organisations manage their spend?

Finance organisations worldwide are going through a significant transformation fuelled by increased competition from FinTechs, evolving business models, growing pressure from regulations and compliance requirements, and disruptive technologies. Amidst these challenging environments, a finance organisation's core competitive advantage is better spend management practices. Spend management aims to maximise business value while lowering expenses, reducing financial risk, and fostering better supplier relationships. If you look around, you might see many organisations filing for bankruptcy as they could not manage their spending. Poor spend management creates a blockage in your cash flow, resulting in a lack of enough cash to run the business. In addition, lousy spend management practices, including lower organizational spending visibility, lead to compliance issues, which open up a whole other pandora box. Resources are spent to overcome these issues and help organizations heal from a bad reputation. For example, a recent Duff & Phelps survey revealed that 24% of financial services executives anticipate spending more than 5% of revenue on compliance by 2023. Moreover, poor spend management leads to a lack of credibility from a perspective of both timing and accuracy can be detrimental in the short and long term. Finance organizations must focus on improving their spend management policies and practices to ensure business continuity and sustainability. Steps finance organisations follow to manage spend Here are some steps that successful finance organisations follow to manage their spending: 1. Procurement Digitisation One of the significant elements of operational spending for financial services companies that stands out is third-party spend. The proportion of the total cost base made up of external spend has been rising for a while. According to A&M analysis, a finance organization spends 41% of its budget on staffing, whereas 36% is on consolidated external spending. The first step in spend management is to digitalize the sourcing, contracting, and procurement processes and those for managing suppliers, invoicing, and payments. Then, these functions are combined into a straightforward, intelligent procedure n a single, cloud-based platform connected to a digital corporate network. Additionally, by deploying end-to-end procurement software solutions, financial companies can restrict the amount of permission that purchase managers can provide by ensuring that expenditure commitments closely correspond to their procurement plan. Procurement automation addresses all of these issues and serves as the organisation's single source of truth by handling everything from managing approvals to paying invoices. This allows for the collection and analysis of all spend data, allowing for the understanding of corporate spending across the entire organisation. 2. Supplier Relationship Management According to Kearney, a financial organisation such as banks can save up to 10-50% across strategic partnership costs by deepening supplier relationships and utilising vendor risk management practices. Successful organizations manage long-lasting relationships with their suppliers by classifying suppliers and dealing with them according to their strategic relevance. For example, if you prioritize clearing payments of your important suppliers, you can bag discounts, rebates, and preferential treatment. Similarly, supplier scorecards aid in performance improvement, which means you will spend on quality products required for your operations that will be durable and won’t cost you repairs and replacements. Organizations can further foster supplier relationship management by providing suppliers with self-onboarding through a supplier portal and communicating with them effectively. When clear expectations are delivered, you get what you pay for. Additionally, digital dashboards guarantee that internal managers have all the data and analysis they need to make wise choices regarding their third-party spending. Strategic supplier relationship management (SRM) done right creates value beyond cost savings. The programs can assist finance organisations in advancing other crucial goals like expanding supplier diversity, strengthening supply chain sustainability, or speeding up innovation. 3. Reviewing Contracts Fintech-specific contacts can be reviewed, considering one another to work toward a more familiar set of standards across data sharing and compliance, pricing, and contract management to reduce overheads and management burdens. Usually, finance organizations review contracts after an incident takes place. For example, they realize later that the procured service at a particular cost could be reduced if they negotiated the past contract. Ineffective management of indirect spend contracts plagues procurement teams all too frequently. Instead, finance organizations should be proactive about their contract management. The significance of contract visibility, in this case, is immense. With complete visibility, finance organizations can ensure they receive the most outstanding services, goods, and prices by actively reviewing their contracts. You cannot possibly have enough knowledge to negotiate in your favor without reading your contract. Digital solutions for contract management might be crucial in better cost control. To determine how the contract stacks up against the competition, organizations get quotes from other vendors and negotiate the current prices. Additionally, regular reviews of contracts and sticking to the terms and conditions stated can help finance organizations stay compliant and save costs. For example, if you buy out of warranty, you can face penalties and miss discounts from your contracted suppliers. Moreover, vendors are more likely to provide your goods or services lazily if they believe you are complacent about your commitments. Final Thoughts When running any kind of organisation, spending can spiral up quickly if not properly managed. As the business grows, visibility decreases as more processes and people get involved. It is essential to leverage digital technologies and platforms to help you determine how your organisation is spending its budget. With proper policies, approvals, and control, finance organisations can manage their spend more effectively and cut drastic organisational costs. Author Bio: Prasanna Rajendran is the vice president at Kissflow, where he heads the business operations of Kissflow Procurement Cloud, a flexible procurement software for procurement teams to streamline all their purchasing processes in a single place. He has over 20 years of experience in technology and has helped Fortune 500 companies with custom solutions in the sourcing and procurement space.