Indirect Spending: How to Manage Your Scalable Costs

by Matt Clark 0

scaleable costs

Business growth can present exciting new opportunities for your company. It also can present daunting challenges – many of which may not be germane to your company’s core business. As invoice volumes increase exponentially, controlling scalable costs is one challenge that must be tackled head-on, in order to better manage indirect spending and maximize working capital, without exponentially increasing staff.

As your business grows, indirect spending on day-to-day operational items increases, as does your need for a wider supplier network. This indirect spending function is often decentralized and delegated to junior staff, with minimal oversight. In addition, because indirect spending often lacks the controls associated with direct spending, it is more likely to result in dark purchasing — one-off purchases that fall outside company policy.

Fortunately, the information you need to control scalable costs, like indirect spending, is likely hiding in plain sight – within your procurement and accounts payable data. Partnering with the right solution provider can help you identify, extract and analyze the relevant data to help your company find the best opportunities for savings. The right partner also can negotiate volume discounts with suppliers that you may not be able to obtain on your own.

Business Growth Is Not Uniform

As a company scales, accounts payable and receivable can grow faster than revenue. As consumption grows, vendor lists also grow. Often, growing vendor lists reflect purchasing in areas outside of a company’s core business. For example, a growing clothing manufacturer will not only need to purchase a greater volume of goods that directly impact their core business, such as cotton, they also will need to purchase a greater volume of “mundane” goods, such as office supplies, telephone service, and business travel.

On the flip side of organic growth, growth through acquisition contributes its own indirect spending challenges, particularly around redundant purchasing from competing suppliers. Many businesses want to minimize headcount increases after an acquisition, so it is crucial that anything purchased through indirect spending gives existing staff the tools they need to support the new organization’s overall growth.

Real-time Visibility Improves Your Leverage

Purchasing insights, including daily spending volumes and trends over time, are crucial to helping you improve your leverage with suppliers of indirect expense products and services. Without real-time purchasing data, you run the risk of adjusting strategies and taking action based on what is essentially yesterday’s news, putting your business in the position of playing a perpetual game of catch-up. Smart companies are turning to third-party solution providers to provide real-time visibility into the purchasing process and help identify potential gaps before they have a chance to impede business growth.

Additionally, outsized indirect spending on things like productivity tools is often the result of a lack of oversight and can be mitigated by an experienced third-party provider. You don’t want to be put in the position of suddenly discovering that your five-year-old accounting system is no longer supported by patches and fixes, forcing you to purchase a brand new technology platform.

Insights into your cash generation can help you minimize unexpected costs, as well as interest expenses. Identifying accelerations and inconsistencies in daily sales outstanding may help you manage your lines of credit and ensure that invoices are approved and vendors get paid so your supply channels are not interrupted.

Synchronizing Procurement and AP Supports Growth

Once you have the necessary visibility into your spending, you can begin to find ways to be more efficient. For example, consider rebate options that may be available with credit cards or virtual cards. Look at potential synergies through consolidating suppliers or contractual arrangements with often-used services, such as hotels, airlines or rental car companies. Economies of scale often trigger better pricing.

Find ways to automate processes around indirect spending and invoice processing to minimize staff requirements, take the burden off your finance team, and make the entire process faster and more reliable. Electronically submitted invoices with email notifications can be matched to electronically generated purchase orders, for faster, more seamless processing, reduced data entry requirements, and a documentation trail in case of invoice disputes. An online vendor portal can give suppliers an easy way to check their invoice and payment status without increasing your staff.

Business growth relies on agility, and nimble organizations need procurement systems in place that will help them control scalable costs such as indirect spending. Avoid the legacy approach of separate procurement and accounts payable silos by making sure these two important business functions converge and work together. A solutions provider that provides a holistic view can help you better manage indirect costs as well as the entire procure-to-pay process.

Matt Clark is the President & COO for Corcentric (corcentric.com), a procurement and finance company that helps companies reduce expenses and improve working capital by optimizing how they purchase, pay, and get paid. Matt can be reached at mclark@corcentric.com.