Beyond Spend Policies - Creating a Spend Culture

Beyond Spend Policies: Creating a Spend Culture

Managing company spending can often feel like being stuck between a rock and a hard place. On one hand, strict policies can provide predictable cash flow but can slow business growth. On the other, relaxed spending policies allow the business to pivot quickly and remain agile but can lead to higher burn rates and uncontrolled spending. So, how can we master the art of an effective spend culture?

Understanding the Risks

1. Overspending and Budget Overruns
One CFO at a mid-size technology startup shared a story about a $19,000 expense report from the sales department that a disgruntled ex-manager had approved before leaving. The finance team had to spend time sifting through hundreds of receipts and reports to determine which purchases were in or out of policy. Without detailed, strict, and effective spend policies, companies lack visibility and control over their employees spending.

2. Slow Business Decision-Making and Growth
On the other hand when teams need to get approval for every minor purchase, operations can slow down. This rigidity prevents employees from making quick decisions, especially when unexpected opportunities or challenges arise. Consider the example of John, a marketing specialist who needs to submit an expense report for a small purchase required for an upcoming event. John must fill out a form, send it to his manager, and wait for approval. The manager, juggling multiple tasks, might delay reviewing the form, causing it to get buried among other requests. This leads to unnecessary delays in issuing John’s payment voucher.

Understanding Spend Culture

Spend culture goes beyond rules and restrictions. It creates an environment where employees understand the ‘why’ behind each financial decision. It encourages them to think like owners and think about the impact their spending decisions have on the company, allowing them to make better decisions that align with business goals. This shift transforms employees into responsible spenders who take ownership, resulting in more transparent and efficient financial management.

How to Create a Spend Culture

Developing a spend culture is not just about setting guidelines; it’s about changing mindsets. Here are some steps to help you get started:

1. Start with Education
   Educate your employees on the impact of their spending, and promote responsible spending. Make sure they understand how their purchases affect the overall financial health of the company. By educating employees about budgeting, cash flow, and cost-saving opportunities, they’ll become more aware of their spending habits and more likely to make smarter financial decisions.
   
   
2. Align Spend with Company Values
   Your spending should reflect your company’s mission and values. If sustainability is part of your brand, encourage teams to make environmentally conscious purchases. If innovation is your focus, invest in tools and resources that drive creativity. When your spending aligns with your company’s values, employees can see the bigger picture, leading to more meaningful and deliberate spending decisions.
   
   
3. Set Clear Guidelines and Firm Policies
   Set clear guidelines and budgets for each category of spending, whether it’s client dinners, employee travel expenses, or office utilities and meals. Ensure that managers are not approving expenses even marginally outside of policy to prevent overspending. This will allow your team to be more mindful of their spending and ensure teams stick to their allocated budgets.

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Consider Approval Layers and Technology

Approval layers allow for managers to receive filtered expense reports for more important purchases without having them waste time reviewing every single small expense claim. 

By creating appropriate approval layers, you can allow your employees the freedom to spend without the restriction of waiting for manager approval for every small purchase.

Approval Layers:
A common approval process includes a layered approach, allowing transactions under a certain amount to be approved by different roles within the organisation. For example, consider these three approval layers for a sales team:

• First Layer - Small Transactions: Allow any transaction under 100 AED to be approved by any member of the sales team. This way, the team has the autonomy to spend without waiting for approval from a busy manager.
• Second Layer - Medium Transactions: Transactions between 100 AED and 1,000 AED should go directly to the line manager for review.
• Third Layer - Large Transactions: Transactions above 1,000 AED should be approved by both the line manager and the finance team.

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Using approval layers, employees like John can get approval for their purchases quicker, while saving their managers time by not having to approve every single tiny purchase. Through this layer the team will hold John accountable for small purchases, larger purchases can be approved by the finance team and his direct manager.

Compared to the standard model of getting approval for every transaction, approval layers provide greater flexibility, speed, and authority for employees to spend. This approach allows managers and finance teams to work more efficiently, without having to waste time approving all transactions regardless of size, and prevents decision fatigue for managers who might be inclined to approve all tiny purchases to save time.

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Technology
Tech-enabled solutions, such as Qashio’s corporate cards, allow you to set custom restrictions on employee spending without slowing down the speed at which employees can make purchases. Through spend management technologies, you can offer guidelines on spending with firm restrictions. 

This approach provides clarity on acceptable expenses, outlines spending best practices, and leaves room for employees to make decisions. Empower your team with a set budget and the freedom to allocate funds as they see fit within those parameters.

Through technology you can get the best of both worlds; flexibility and speed for your company’s spending, and the control, and visibility of a simple approval process.

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Speak to the team today to learn more.

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