What is spend visibility?

Spend visibility refers to how well a company can understand and track how, where, and why capital is used in their business operations. Spend visibility increases when finance teams can more accurately see where company money is being spent. Low spend visibility is defined by difficulties tracking spend comprehensively or accurately.

While simple in theory, spend visibility is much more complex in practice. For medium, large, and corporate businesses, it’s not enough to just understand how much money has been spent. To get truly meaningful insights, spend visibility must also delve into the effectiveness and efficiency of spending.

This is what separates it from the more simplistic practice of expense tracking. Sophisticated spend visibility capabilities should be able to provide information about:

• What is being purchased
• Who is doing the purchasing
• Who is being purchased from
• When and how often the purchases are being made
• What prices are being paid and how much is spent in total
• What goods or services were delivered for the cost
• How is spend developing over time

Spend visibility data can be complex to collate and analyze, which is a leading factor in the uptake of spend visibility software. Often integrated as part of wider enterprise resource planning (ERP) systems, this software can automatically collect data relating to spending from purchase orders or invoices.

The data is then often visible in a central dashboard, which will highlight key insights to make it easier to interpret the ramifications on spending strategy and help to guide efficiency improvements. Spend visibility is also deeply involved with the separate practice of cash flow forecasting, and spend visibility software is therefore often combined with forecasting capabilities.

Why spend visibility matters

The data that good spend visibility performance delivers when collected and disseminated properly can be invaluable in guiding business decisions. It is most important in understanding the effectiveness of the incumbent working capital management and procurement processes. Therefore, it is essential to get right for businesses who want to make data-driven decisions about how to develop their working capital management and procurement strategies.

Spending is a significant part of the overall web of operations that make up most businesses. It has direct implications on profitability, resilience to market conditions, and, for public companies, investor sentiment.

Given the importance of spending in business, it’s clear to see how understanding where money is being spent, why it’s being spent there, and how transactions took place should be a priority. Improving spend visibility provides the kind of insights that can help businesses to:

• Identify basic cost-saving opportunities
• Increase spending efficiency
• Weed out over-expensive suppliers
• Optimize procurement strategy
• Provide clearer cash forecasting capabilities
• Uncover internal budget allocation imbalances
• Reduce maverick spend

The impact of having a single source of truth that can contribute towards delivering the above improvements is hard to overstate. Better spend visibility can fundamentally transform the maturity with which capital is used, while also providing sound justification to back up the transformation.

Challenges obscuring spend visibility

While improving spend visibility in an organization is highly important, it’s not without its challenges. This is particularly the case for companies who make use of traditional finance processes and procedures, rather than their digital counterparts.

There are three main challenges that can impede or obstruct a business’s visibility over spending:

• The limitations of old-fashioned payment methods: Businesses that still use traditional payment methods such as cards on file or paper checks will struggle to adopt a comprehensive spend visibility program. These payment methods aren’t as easy to collect data on, reliant on the manual process of the person responsible for the spend accurately and completely recording the details of the transaction.
• Manual processes lacking real-time data integrations: The more manual the accounts payable process is in a business, the more difficult it is for spend visibility to be improved at scale. Manual processes are largely slow and tedious, prone to human error, and distract from higher-value actions.
• Poor availability of a single source of truth: Without a single, centralized dashboard that tracks spend across an entire organization, there is no single source of truth for stakeholders to refer to. This makes improving spend visibility more difficult as different teams work from different data, with no ability to gain complete oversight on the state of spending. It can also lead to issues with duplicate payments or orders.

How to improve spend visibility

However, these challenges can be overcome. Technology is increasingly able to be leveraged as a way of improving processes that relate to company spending, from better data collection to complete automation of certain steps. There are several key methods businesses can use to improve their spend visibility capabilities, namely:

• Updating payment methods: Moving away from traditional, more manual payment methods such as using cards on file or paper checks towards modern digital payment solutions is a critical step to improve spend visibility. Such a move minimizes the manual effort required to make payments, reduces the likelihood of payment errors, opens up opportunities to make use of solutions like dynamic discounting or supply chain finance, and makes spend data much more visible.
• Adopting a centralized spend management system: Centralization of spend management into one digital platform with appropriate internal access controls can bring about large efficiency improvements. This is particularly important if spend is committed by many people across an organization, perhaps across different departments. A central spend management dashboard, integrated with a broader ERP system, gives stakeholders better visibility over company-wide spending, while also making sure everybody is on the same page.
• Automating spend analysis: Finally, with digital payment methods embraced and a central ERP-integrated spend management system set up, automation can be applied throughout spend-related processes to further improve the efficiency of data collection and analysis. Spend management software can provide opportunities to automate payment processes, cash flow forecasting, demand forecasting, and even other supply chain activities like supplier management and inventory management.

By adopting digital systems that allow for better spend visibility, businesses can gain much more accurate and comprehensive insights into how well their capital is being used. These insights can guide spend strategy, uncovering inefficiencies and resulting in better working capital management.