Managing spending and approving company expenses is no easy task. From budget planning to reviewing expense reports, there’s a lot to do and often not enough time to do it.
Because of the workload, you might be tempted to rush through your purchase approvals without giving a second thought to what you’re approving. But signing off on requests without scrutiny will undoubtedly impact your company’s bottom line. And not in a good way.
An effective way to reduce this overspending is to introduce a transparent and efficient spend management strategy. Not only does this help reduce maverick spending, but it also ensures your approvers ask the right questions before signing off on spend.
In this article, we highlight eight essential questions you should ask before approving spend.
1. Does the expense align with current operational priorities?
Companies do not have infinite resources. Therefore, managing your resources with efficiency in mind and controlling spend is business priority number one.
‘Making sure that spend aligns with the business is critical,’ explains Bevan Van Der Berg, Procurify’s CFO. ‘The key from a business perspective is to make the case that what you’re spending ensures you move the business forward.’
But while this is the case, many teams will request spend without thought to how it ties in with the company’s overarching operational objective.
For example, your Marketing Manager might strongly believe the team needs a new tool or that the company needs to spend more on advertising. If this spending fails to contribute to business growth, it’s worth following up on the request. As Bevan explains:
‘If you can demonstrate ROI and express that the request helps work towards operational goals, then a good finance person can help make sure the request is approved. Ultimately, a finance person wants to find a reason to decline spend if it’s not aligned to the business objective.’
So, before approving an expense request, make sure there’s a strong enough business case in place that can prove growth.
2. How will team members benefit from this expense?
Every spend request should enable teams to work smarter, more productively, and more efficiently. If a request fails to achieve these three things, flag it for a follow up with the requester.
Ultimately, each expense request should unlock as much of the team as possible. For example, if you’re purchasing training to contribute to a team member’s professional development, find out whether that course is available to more than one person, or whether you can achieve volume discounts. If so, offer up that training to other relevant team members.
3. Does the expense request breach your spend policy?
Having a clear and concise spend policy in place helps you justify if an expense is beneficial or not. ‘A spend policy reduces uncertainty, reduces confusion, and speeds up time to approval,’ explains Bevan. ‘It also reduces business risk.’
What more, a robust spend policy makes expense approvals easier. Team members already know the kinds of expenses they can make, how to make them, and who they need to speak to within the business before making the request.
Additionally, a spend policy reduces the cognitive brainpower required to spend on behalf of the business and takes the stress away from approving spend when you clearly shouldn’t.
4. Do you have sufficient paperwork for the expense request?
While we might all agree that paperwork is a pain, it still plays a role in purchasing today and it’s an important part of tracking and approving expenses.
Before signing off on a purchase, make sure you have the necessary paperwork to process a request. Automating your expense approvals will help make this process easier and means you can avoid the unnecessary (and manual) back and forth that comes with an incomplete request.
Not only that, but the right paperwork ensures your business remains financially compliant and streamlines the reconciliation process, saving you both time and money.
5. Does the expense request have the correct account code?
Most frequently, this occurs when team members create an expense request and use an incorrect account code. If this isn’t flagged during the approval process, it causes red tape and slows down AP teams, who can’t reconcile spending against the correct budget.
Quite simply, it’s important to check if the expense request matches the right account code. This way, you can eliminate the problem.
6. Is a team member using a similar software? If so, can we share licenses?
On average, companies spend 3.28 percent of their budgets on software costs.
If you receive a request for new software, the first thing you should do before approving the expense is ask whether you have a license for something similar in your current tech stack.
Before approving spend on technology, follow up with your IT team and determine how essential the tool is to the overall business. Is it solving an urgent problem for the team? Does it solve unique problems in your organization?
If the answer is yes, then you can move on to find out if the license for the product can be shared. Doing this saves money and improves the use of existing resources.
7. Can we apply volume discounts and save some money?
In a case where there are multiple requests for the same product or service, getting volume discounts can reduce company spending and save money.
Prior to the approval of any expense, check if you can leverage existing supplier relationships and get a volume discount. By purchasing from a supplier with prices preapproved by the company, you can achieve discounts. Of course, it’s also imperative to compare prices and get the best deal, even if it’s from a new supplier that’s offering a better rate for the service or product.
8. How does the expense compare to historical purchases?
Finally, before approving an expense request, it’s important to look at historical spend data for similar purchases and benchmark the request against them. ‘One question I always ask when looking at expenses is: how does this expense compare to historical expenses in the same category?’, Bevan explains.
‘If it’s more expensive than a historical purchase, be sure to ask why. For finance teams, the idea is that you want to mitigate exposure and risk. Comparing requests to historical purchases is a great way to do that.’
Approving company expenses starts with a clear expense policy
Although asking these questions will help you eliminate wastage and reduce rogue spending before it even happens, good spend management starts with a clear expense policy.
With an expense policy, teams can access clear guidelines and ensure they spend efficiently and effectively. Not only will a policy standardize how your company spends money, it’ll also ensure you have the right checks and balances in place to reduce unnecessary costs, and it’ll safely unlock and speed up team spending without impeding on your business’s bottom line.
Are you ready to create a clear expense policy?
Download our free and customizable templates below and get started.
If you’re looking for an automated way to approve expenses, be sure to check out Procurify.