Small business owners wear many hats, but “financial detective” shouldn’t be one of them. Yet that’s what happens when spending lacks structure—you put in hours each month tracking down mysterious charges, chasing approval workflows, and wondering where your budget went wrong.

Business spend management (BSM) eliminates the guesswork by creating a system for how money flows through your business. Instead of reacting to spending problems, you prevent them, and get visibility into your finances, so you can make confident growth decisions.

Learn how BSM works, the key activities involved, and five expert tips for implementing spending controls that save time, reduce costs, and give you peace of mind.

What is business spend management?

Business spend management is a set of business practices, supported by software, used to help control costs. It accounts for every dollar spent, from employee expenses to vendor contracts. Different parts of a business have different spending needs—procurement handles purchasing, accounts payable processes invoices, and human resources manages employee expenses, for example—and BSM brings all the information together.

BSM provides you with tools to manage and control spending before the money is spent, rather than chasing expenses after the fact. It integrates every stage of your spending life cycle—from request and approval to payment and reconciliation—into one process.

To understand BSM, it’s important to know about different business-spend categories:

• Direct spending. These are costs tied to your products or services. For a manufacturing company, this would include machinery, raw materials, and production-related software. For a software company, it might be cloud hosting services or third-party developer tools.

• Indirect spending. These are the expenses required to run your business, but they’re not used to create the primary product. They include office supplies, legal fees, consulting services, and utility bills. 

• Employee expenses. These are out-of-pocket business expenses your workers incur on behalf of the company. They include travel costs, client dinners, or professional development conferences.

• Capital expenses. Capital expenses are long-term investments in tangible assets like buildings, machinery, or vehicles. These are often large, one-time purchases that require planning in advance.

Business spend management is typically supported by a single software platform. This software centralizes and automates all business spending activities, from initial request to final payment.

A BSM platform brings together several functions that may have been handled by separate systems: 

• Procurement and vendor management

• Accounts payable automation

• Expense management

• Financial reporting and analytics

By bringing these functions together, BSM software gives businesses a clear view of their spending. Leading BSM platforms include SAP Ariba, Coupa, and GEP Smart.

Business spend management activities

• Procurement and strategic sourcing
• Purchase order management
• Expense management
• Accounts payable automation
• Spend analysis and reporting

The best spend-management solutions streamline the most common financial tracking and types of spending businesses do. Learn more about these activities and how BSM can make them clearer and smoother for your business.

Procurement and strategic sourcing

Procurement requires sourcing necessary goods and services by identifying, evaluating, and engaging with your suppliers to secure the best quality and rates.

A BSM platform streamlines this by creating a central library for all vendor-related data. This allows you to manage contracts, track performance against key metrics, negotiate terms, and build stronger relationships with vendors. This approach can also help prevent employees from buying things from unapproved vendors at a higher cost.

Purchase order management

Once you select vendors for a specific purchase and you’re ready to order items—whether it’s new office supplies, marketing software, or manufacturing materials—the next step is to create a purchase order. BSM software centralizes this process to make sure purchases have been approved and aligned with your budget before you spend money.

BSM software automates approvals with customizable rule-based workflows. For example, if a purchase exceeds a certain amount or comes from a new vendor, it can be automatically sent to you for review. It also keeps an audit trail, making it easier if you need to check your accounts.

Expense management

Expense management is an important part of a BSM platform. It focuses on controlling costs incurred by employees for things like travel, meals, and other out-of-pocket spending.

The expense management tools in a BSM platform simplify this process. Employees can take photos of receipts and the system uses technology like optical character recognition (OCR), to scan the data. This instantly fills out expense reports with details like the vendor, date, and total amount.

The software has built-in approval workflows that automatically determine who needs to approve a request and route it to the correct person. This automation streamlines the process by ensuring requests are sent to the right person every time, reducing delays and eliminating the need to chase down approvals.

Additionally, the system can automatically approve requests that meet certain spending limits. This ensures all employee expenses are tracked, audited, and reimbursed within the BSM system.

Accounts payable automation

This is the process of paying vendors and suppliers. Traditional accounts payable can be complicated by manual data entry, chasing down approvals, and comparing vendor invoices to purchase orders.

A BSM system simplifies this by automating the steps of invoice capturing, approval routing, and reconciliation. When invoices are uploaded or emailed to the system, the BSM platform automatically reads and extracts data. It matches invoice details with the corresponding purchase order and initiates payment once approved. This helps prevent duplicate payments and various types of fraud, such as unauthorized purchases, inflated invoices, and payments to fake vendors. Additionally, the system provides a clearer view of your upcoming cash outflows.

Spend analysis and reporting

Spend analysis is the process of collecting and categorizing your business’s spending data to identify trends, pinpoint opportunities for cost savings, and improve supplier relationships. It is probably the most strategic part of business spend management.

A BSM platform produces a lot of spending data in real time. With data analysis tools, your business can review your spending trends and spot spending patterns. This helps you make better, data-driven decisions. Detailed reports on spending data over specific time frames can help you with better budgeting and more accurate forecasting.

Tips for effective BSM

• Manage your data on a unified platform
• Set and enforce spending policies
• Analyze your spending on a regular basis
• Foster financial responsibility
• Embrace automation to reduce manual tasks

To build a robust BSM strategy, consider these expert tips:

Manage your data on a unified platform

Before BSM platforms came along, spending data was often scattered across different departments and systems. Maybe your business’s financial information is spread across spreadsheets, email chains, physical receipts, or vendor portals. This fragmentation gets in the way of effective spend management, making it hard to get a clear view of where your money is going.

The first step is to adopt a single spend management platform that can handle all your company’s processes, from procurement to payments. This gives you a central space for all your financial data, giving you the real-time spending insights you need to make quick, smart decisions.

Set and enforce spending policies

To help rein in overspending, create spending policies for yourself and your team, and use your BSM system to enforce them.

For example, let’s say you run an online boutique. You might create a policy requiring your approval for any marketing tool subscriptions of more than $100 per month, or any inventory purchases over $1,000. Your BSM platform can automatically route these requests to you as soon as an employee submits them—whether that’s your social media manager wanting to upgrade to a premium design tool or your assistant placing a large wholesale order. This prevents surprise charges on your credit card and ensures you’re aware of all significant expenses before they happen.

To stop problems before they begin, a BSM platform can automatically alert you about transactions that violate your policies. For example, the system can flag purchases that exceed your budget, those made with unapproved vendors, or transactions above a set dollar amount. These alerts provide you with real-time visibility into out-of-policy spending, allowing you to take immediate action instead of finding out about issues later.

Analyze your spending on a regular basis

Make data analysis a part of your financial operations, whether you do it weekly, monthly, or quarterly. This gives you a real-time picture of your business’s financial health, allowing you to make data-driven decisions to improve forecasting, reduce costs, and boost overall efficiency.

It turns raw spending data into strategic insights, and it can guide future budget management. While not all platforms offer the same level of detailed reports, most include analytics and reporting as key features. Use the reports provided to look for spending patterns and uncover cost savings opportunities.

If you’re not sure where to start, begin by focusing on a few key metrics, such as how much each department spends or your largest vendor expenses. The platform’s reporting features may let you create custom dashboards, highlighting areas of your company you want to review. This helps you quickly spot trends without getting lost in the details.

Foster financial responsibility

Shifting your mindset from viewing financial responsibility as a necessary evil to a shared goal can be challenging, but effective spend management is a team effort. Empower department heads and staff by giving them the tools they need—like real-time dashboards, easy-to-use request forms, mobile access, and automated alerts and notifications—so they can be accountable for their spending. When everyone understands the impact of their collective financial decisions, it creates a more responsible and cost-conscious organization, and it boosts your bottom line.

Embrace automation to reduce manual tasks

If you’re running a business in this day and age, you need to lean into the technology that will make your life easier in the long run. Identify where manual tasks create inefficiencies, like creating expense reports or processing invoices. Good business spend management software can automate these workflows, saving time, reducing human error, and freeing you up for other important work. Begin by automating one key process to help you build momentum toward further automation in the future.