The Importance of Spend Control During a Recession

In the face of growing uncertainty, a recession is on the cards, and it’s predicted that the economy will contract by at least 0.6% in 2023. This means businesses should prioritise cautious spending and implement contingency plans to remain resilient. Despite this, less than half (45%) of businesses are ‘recession-ready.’

Ask any finance leader what their primary goal for 2023 is, and reducing their company’s overall spend and boosting their spend control will likely be the top answers.

What Is Spend Control?

Every expense going out of a business falls under ‘company spend,’ such as paying for supplies, raw materials, technology, subscriptions, and business trips. Spend control best describes the practices and tools used to monitor and manage all outgoing funds.

It’s important to note that spend control doesn’t mean cutting or minimising spending; it means ensuring strategic spending instead. Spend control, along with other finance automation tools, gives the finance team a better understanding of all outgoing funds, ensures purchases are approved prior to initiating payment, and that teams are staying within their budgets.

To achieve better spend control, visibility is key.

Why Is Spend Control So Important?

There are several reasons why spend control is important, and staying on top of the money going out is vital regardless of the size of your company or the industry you operate in.

The more control a company has over its spend, the better it can protect itself for the future. This is particularly crucial at the moment, given the ongoing economic uncertainty and the threat of a looming recession.

Strategic spending is also vital for a business to get the most out of its money. Some of the other reasons spend control is so important right now include the following:

• Making informed financial decisions and accurate forecasting
• Identifying flow problems and halting unnecessary and excessive spend
• Ensuring each department stays within budget through strategic planning

How Spend Control Makes Companies More Efficient

We’ve already established why spend control is so important, but what does it do, and how can it make a company more efficient?

Several ways spend control supports the finance department and the wider business include:

1. Identifying unauthorized spend

Deliberate unapproved spending can happen from time to time, and the offending employee might pass off the delinquent transaction as an error. However, with spend control in place, it’s possible to identify maverick spending and better differentiate between intentional spend and genuine errors.

2. Uniting departments and leaders

By choosing the right tools and having all payables processes and spend control on a single platform, finance team members and business leaders can all access vital spend and budget information.

This gives budget-holders full visibility over their spend, as well as the finance team, making it easier to ensure all departments are on the same page.

3. Access to real-time data

Automated solutions with spend control capabilities automatically collect and store important information, providing real-time data. This gives finance team members complete visibility into budgets and company-wide spend.

4. Better financial performance

By implementing spend control, companies can benefit from better financial performance. Moreover, better access to real-time data helps finance leaders optimise spending habits and make smarter purchasing decisions.

This way, companies can be more agile in a fast-changing market, increasing business opportunities and improving financial statements.

5. Strengthen budgeting and forecasting

As mentioned, increased visibility of company-wide spend makes budgeting and forecasting more efficient and accurate. Examining the spending habits of each department makes it easier to see how money is being spent and where budgeted funds should be allocated in the future.

Finance team members can also see each departments’ spend and how it affects the company’s overall financial performance. This makes it easier to flag excessive spending that could be reduced in future budgets or negatively impacts the business's bottom line.

6. Bolstering capital reserves

Improving spend control and keeping a close eye on departmental budgets helps increase efficiencies which can result in additionally saved funds being allocated into your capital reserve. This can be crucial during unstable or slower periods, like the forecasted recession. Having cash reserves is key for making it through economic difficulties and ensuring the business can stay afloat.

7. Negotiating better contracts

Finally, having access to real-time data and understanding what everything costs makes it easier for the finance team and department leaders to negotiate new contracts and payment terms with vendors and suppliers.

In fact, improved negotiations are one of the best ways businesses can save money, helping you get a better price and form stronger relationships with your vendors.

Finance teams need visibility

With the current state of the economy, finance teams need greater visibility and control to ensure the business can keep up with changing market conditions and make smart and agile financial decisions.

Technology is the key to greater visibility, and finance leaders need to embrace these innovations and invest in the right tools to empower and modernise their departments.

Find out more about how Tipalti can provide vital spend controls across different departments and budgets.