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What is Spend Management?

By Christine Hudson
Updated May 17, 2024
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Reviewing the spending reports of a company in order to find costs that can be cut is the essence of spend management. There are times when a company begins reviewing the spending reports and may realize too much money is being spent. When this happens, companies look to the spending report in order to locate where costs can be cut. This is essential for any company to ensure they stay within a budget and do not waste profits in unnecessary spending.

There are a few ways a company can go about the spend management process, but the most common place to start cutting expenses is within the business operations. Operating costs may include internal expenses such as employee payroll, materials and order processing. A company can look at these costs through ledgers and reports compiled through an accountant or accounting software. There are several software options which allow a company to view spending from a variety of aspects to make it easier to view where money is not being utilized in the best way.

External operating costs might include indirect materials, third-party services and outsourcing. Many times, these outside services save a business money because they eliminate the need for more employees and larger overhead costs. In times of spend management crisis, however, a company may need to analyze which services it can do without until costs become more stable. Another possibility is looking for vendors offering the same or similar services for lower prices.

Other costs which might be assessed for spend management are those associated with advertising. While advertising is vital to the success of many businesses, there are times when a company must look to less expensive alternatives. Changing marketing tactics and choosing a different vendor to handle campaigns are very common decisions for businesses looking to lower costs without hurting profits.

After initial assessment of where capital is not being wisely spent, a spend management plan must be developed and implemented. This may be a permanent change in business operations or simply a temporary shift. If it is a temporary plan, guidelines are generally set for when and how operations will return to normal.

The local and global economy can play a big part in the success of a company and the need for spend management. When the net profit begins to shrink, implementing spend management becomes necessary for the growth and sometimes even survival of the business. As local and global economies ebb and flow, many companies must adapt spend management plans to stay profitable.

WiseGEEK is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

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