What Is Business Spend Management?

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What Is Business Spend Management?

Table of contents

Business spend management (BSM) is a mix of technology and strategies that capture everything that comes before, during, and after the direct action of spending money for business operations. From sourcing events to negotiating the terms of contracts, creating purchase orders, processing invoices, and a host of other spend, cash, liquidity, and supplier-related activities — business spend management tracks, analyzes, and automates a company’s spending patterns and processes end-to-end in order to reduce risk, improve profitability, and boost operational efficiency. At its core, BSM is about maximizing the impact of every dollar a business spends.

BSM and expense management are often considered the same thing, but in reality expense management is a subcategory of business spend management. Expense management includes work-related expenses incurred by employees, which the company then repays. Meanwhile, business spend management includes expense management and all other company spending, both direct (costs associated with the making of a product or service) and indirect (costs not directly related to the making of a product or service).

Business spend management includes everything that expense management includes (out-of-pocket expenses and travel expenses), plus procurement, inventory management, office supplies, treasury and cash management, software, marketing, product development, sourcing, invoicing, and supplier management.

As you can see, BSM touches every area of business spending. When companies have a detailed overview of how and why resources are used, they can make smarter business decisions.

“BSM harmonizes a range of back-office processes to deliver more value and efficiency together than they could alone. It starts with using technology to gain a unified, granular view of all company spend, empowering finance and procurement teams to make and act on decisions quickly, reduce risk, and create smarter supply chains.”

Tony Tiscornia, Chief Financial Officer at Coupa

Why business spend management is important

Unexpected supply chain disruptions, record-high inflation, and stricter global environmental, social, and governance (ESG) standards mean profit margins are becoming increasingly narrower. And as prices have continued to climb, many companies have been able to push those increases onto their customers, but that strategy isn’t sustainable. According to a May 2022 Gartner survey of 199 chief financial officers (CFOs), 78% are making digital investments one of their main strategies to battle inflation.

Top 3 strategies CFOs are taking to increase profitability: increase digitization, increase efficiency, and retain employees

That’s because those who still use traditional spend management systems, which often rely on a string of different point solutions, are at a disadvantage. Their processes become more and more complicated, time-consuming, and siloed. This leads to: 

  • Low employee adoption resulting in lower spend visibility
  • High labor and technology costs due to processing transactions in different or redundant systems
  • Increased error rate due to manual processes and poor supplier adoption 
  • Lack of governance and oversight resulting in spend leakage
  • Inability to accurately track KPIs

It’s no wonder 46% of chief financial officers lack complete visibility into the transactions within their organizations. If you don’t know where or why money is being spent, you can’t make smart decisions that fuel company growth.

46% of finance leaders lack complete visibility into spend data across the company.

This is where business spend management gives organizations a competitive edge. It eliminates manual work, improves cross-functional collaboration, and provides a single truth source for company spend. The evidence is clear — those who apply BSM practices save 6.6% on addressable spend compared to only 2%–3% who use traditional spend management approaches. However, the full benefits of business spend management go well beyond driving down costs.

The benefits of business spend management

The main benefit of BSM is giving decision-makers accurate and holistic data to respond strategically to quick-changing market conditions. Other benefits of business spend management include:

Decreasing costs and improving sustainability

Companies shouldn’t have to choose between their profitability goals and sustainability goals. In fact, companies that prioritize sustainability in their operational strategy see better profitability growth than their peers. BSM enables companies to weave environmental, social, and governance (ESG) data into their spending processes to find diverse suppliers at the best price, reduce carbon emissions in their supply chain routes, and improve supply chain transparency with AI monitoring. And since spending data is tracked in one place, AI also helps categorize and analyze this data for additional saving measures. For example, the procurement team may get a notification stating the company is spending 30% more on a certain commodity than the customer community in their industry, so renegotiating the contract would drive additional savings.

Improving employee productivity

By digitizing and automating manual processes, you not only reduce errors but free your employees to focus on more analytical work. Take automating invoice processes, for example. Best-in-class companies achieve an average first-time invoice match rate of 96.5% and a 10.6-hour invoice approval time — freeing AP teams to cross-reference contract and payment terms to improve profitability. Thanks to quicker invoicing, procurement teams experience fewer bottlenecks and strengthen their supplier relationships. CFOs are better able to predict cash flows and adjust budgets, too. Modernizing these processes creates positive ripple effects across the entire organization.

Reducing risks

Risk management includes compliance with ESG and tax regulations, assessing and monitoring third parties in your supplier base, and preventing fraudulent payments. ESG risk, in particular, is becoming increasingly vital as governments and consumers require more detailed disclosures from companies on their carbon footprint. With more than 90% of a company’s greenhouse gas emissions attributable to supply chain operations, according to EY, vetting suppliers has never been more important. BSM tools provide visibility into your supplier's base, monitor for violations, and flag any suspicious activity in real time. Internally, automated processes and pre-set controls help avoid the risk of error or fraud, and even prevent blown budgets that could damage a company’s reputation with investors.

Strengthening financial planning

Business spend management provides full, real-time visibility into all types of spend, approved invoices, global cash position, and upcoming payments that finance leaders and treasury departments typically lack. By pushing out the timing of payments while respecting supplier cash needs, finance leaders unlock hidden yield on company cash and can even turn payments into a source of financial return. The increased end-to-end visibility also helps finance teams spot when current spending levels may exceed budgets, enabling them to reallocate resources as needed and plan for “what if” scenarios.

How business spend management is used

Business spend management is built around a set of predefined processes, with all requests, buying, and tracking of company spending ideally happening in one central system. To achieve this, companies usually invest in certain BSM capabilities as they scale. That’s why we think of BSM occurring in the following maturity stages.

The 5 stages of business spend management maturity
  • Stage 1 - Manual Processes → Processes are manually intensive and siloed as paper, spreadsheets, emails, or various point solutions are used to track, manage, and analyze spending. 
  • Stage 2 - Digitization and Automation → The digitization and automation of manual processes across procurement, invoicing, payments, cash management, and expenses — leading to improved spend visibility and employee productivity. 
  • Stage 3 - Unification of Digital Processes → The unification of those digital processes into one workspace or system — leading to improved collaboration across departments, faster approvals, more accurate reporting, and reduced risk. 
  • Stage 4 - Optimization with AI → The use of AI to provide industry benchmarks, detect fraud, and identify areas of improvement — leading to optimized business performance. 
  • Stage 5 - Innovation → The constant refinement of all stages — leading to innovation, strategic decisions, and the agility to withstand market disruptions. 

Let’s break down the first four stages even further by the different business functions involved.

Stage 1 - Manual Processes

  • Finance: Since there usually isn’t a formal procurement process, all purchase requests must go through finance. We call this “finance-heavy procurement,” which results in a slow approval process. Teams use spreadsheets and short-term point solutions to track spending and payments, so cash forecasting is complicated.
  • Procurement: Employees often buy items through ad-hoc methods since limited technology or formal processes exist. If there is a dedicated procurement leader or team, it’s mainly in the role of buyer and contract administrator for the entire company.
  • Sourcing: Often, spreadsheets and/or an enterprise resource planning (ERP) system are the only methods for sourcing, so for those outside of finance and procurement the adoption rate is low. This leads to many non-contract purchases, saving leakages, poor supplier performance monitoring, and bidding errors.
  • Supply chain: There is no clear organizational structure and processes are manual. Teams rarely re-examine their supply chain design, and do so with point solutions that may offer limited capabilities. Altogether, this results in reactionary decision-making.

Stage 2 - Digitization and Automation

  • Finance: Many companies begin moving up on the maturity model by tackling Accounts Payable (AP) automation (although not end-to-end), to start seeing the quickest value from BSM practices. Since invoicing is very much paper-based, teams look to automate PO and invoice matching and reconciliation.
  • Procurement: Automating some core procurement functions helps improve category management in key spend areas and segment suppliers. A basic, more streamlined procurement process is emerging with a focus on cost savings. However, holistic tracking of spend is still limited.
  • Sourcing: Automating tasks and leveraging templates speeds up time to market by streamlining the bidding process and making it easier for the sourcing team to compare bids directly. The team also uses automated alerts so buyers and suppliers can collaborate effectively and work towards key milestones.
  • Supply chain: Supply chain leaders are embracing some digital tools, such as a digital twin of their supply chain. However, the supply chain may not be integrated into core business decisions.

Stage 3 - Unification of Digital Processes

  • Finance: Companies begin to have 100% touchless invoicing with PO matching to prevent duplicate invoices, speed up approvals, and identify off-contract spending. Teams generate reporting dashboards thanks to the increased cash visibility by moving to a BSM platform. Payments are now made on time and with ease, but as the company scales, they consider adding a treasury management system to manage cross-border payments and international tax compliance.
  • Procurement: The company’s new BSM platform enables procurement to streamline the purchasing process with self-service options and automated workflows for all employees — leading to improved spend categorization and fewer off-contract purchases. Supplier collaboration tools help improve supplier relationships, too.
  • Sourcing: As the company scales and sourcing becomes more complex, advanced mathematical optimization techniques enable the team to run multiple bidding scenarios across many categories, and implement supplier risk scores to ensure they select the best option. And once a supplier has been selected, the new contract is automatically connected to the entire P2P process — lowering risk and improving value capture.
  • Supply chain: Data from across the business now flows seamlessly into supply chain design tools, such as a demand modeler, enabling better inventory control. Other data outputs, like sourcing transportation, empower the team to act on the best carrier rates to further optimize supply chain networks. The team also builds reporting dashboards to share info with important stakeholders to drive better business decisions.

Stage 4 - Optimization with AI

  • Finance: Teams begin to use AI to detect fraud internally on purchases and externally on vendor screenings and payments. And with 100% spend visibility, finance balances short-term resource allocation — due to inflation or sourcing shortages — with funding for long-term growth projects.
  • Procurement: With global community spending data, AI classification breaks purchases into primary and sub-categories. This leads to community-driven opportunities such as vetted supplier recommendations, pricing insights, group sourcing events, and comprehensive risk and fraud mitigation.
  • Sourcing: Thanks to better spend classification, sourcing takes advantage of its spending power in supplier negotiations. Sourcing across multiple categories with different needs, like improving sustainability or lowering overall costs, is easier, too. AI uses outside data sources to monitor supplier risk and performance over time continuously.
  • Supply chain: AI helps identify the highest cost drivers in the supply chain such as inefficient transportation routes or poor use of carrier capacity. Teams can then run targeted scenarios in their digital twin that will result in the biggest payoff, giving financial decision-makers more control over the cost levers of the business.

When companies enter stage 5 of the maturity model, they focus less on their process and more on strategic, forward-thinking initiatives, giving them a competitive edge over their peers.

Who uses business spend management

Spend management functions and responsibilities have traditionally fallen onto procurement teams, but business spend management is different. It involves each department at different stages across the entire spend cycle. Here, we’ll discuss how leaders in each department use BSM technology.

Who uses business spend management? CFOs, CPOs, CSCOs, Heads of Sourcing, and CIOs.

Chief Finance Officers (CFOs)

CFOs want to grow the bottom line. To do that, they need a complete view of spending data to find ways to cut costs without hindering the company’s growth engine. But with traditional spend management practices, they spend much of their time tracking down that data spanning across multiple systems. Business spend management tools help centralize and analyze that data, giving CFOs complete visibility and better control of spending across the entire organization. It also helps them enforce compliance and reduce risk.

Chief Procurement Officers (CPOs)

With such unpredictable market conditions becoming the norm, procurement leaders’ strategic purchasing strategies that control costs, address risk, and support supplier diversity are vital for business continuity today. CPOs use business spend management tools to gain full visibility into spending categories, automate compliance monitoring, and enforce spending best practices by simplifying the purchasing process for all employees — often working closely with sourcing, supply chain, and finance to achieve it. They look for BSM software that enables the integration of key procurement processes such as contracting, purchasing, invoicing validation, and supplier payments.

Head of Strategic Sourcing (HSS)

HSSs — also known as Head of Sourcing — use BSM tools to accurately track and analyze the company’s sourcing needs, build category and demand plans, and then source those goods and services at the best value by negotiating supplier contracts. It’s important that the savings won during the contract negotiation phase (source-to-contract) aren’t lost when employees go to purchase the items themselves (requisition-to-purchase). Sourcing leaders control this by efficiently onboarding suppliers and operationalizing contracts so employees don't buy goods and services outside of those agreements. They also monitor risk and performance continuously to ensure downstream activities, like procure-to-pay, are not disrupted.

Chief Supply Chain Officers (CSCOs)

CSCOs work to manage demand, ensure product availability, balance inventory, and achieve ESG standards. More recently, however, CSCOs are partnering with chief finance officers to help improve profitably, which makes sense since 20% of revenue can be accounted for in supply chain costs. They use BSM tools to gain a complete end-to-end view of the supply chain. One of the most important tools is a digital twin — a digital replica of the organization’s supply chain — which helps CPOs plan for unexpected disruptions by running different cost-analysis scenarios in a risk-free testing environment.

Chief Information Officers (CIOs)

IT leaders aim to improve the core operating processes or workflows of a company. To do so, they look for business spend management software that enables easy configuration to support faster, more efficient operations. This includes optimizing data analytics. BSM tools help them connect data across business processes and organize that data in a way that employees can understand and act on. CIOs also help leaders across the organization choose the right technology that will support not only specific spend needs but also integrate seamlessly with the company’s current tech stack and ERP.

How to implement a business spend management strategy

A well-executed business spend management strategy enhances financial visibility and improves employee decision-making. However, getting employee buy-in for new spending policies is not always easy. Here are four steps to help you overcome that challenge and implement a successful BSM strategy.

  1. Assess current spending practices. Do employees know the company’s preferred suppliers? How many steps does it take to purchase an item? Think about the buying and expense process and look for areas of improvement. The more seamless the experience is, the more likely employees will stick to company-approved spending practices. 
  2. Form a dedicated BSM team. Collaboration across business functions is one of the most important components of a successful BSM strategy. Create a dedicated team of finance, procurement, sourcing, supply chain, and IT leaders, and establish clear goals. The team can keep employees aligned on best practices and track progress toward the company’s overarching BSM strategy. 
  3. Select the right BSM tools. When tools are easy to use, they have a higher adoption rate. Look for user-friendly tools that make the buying and expense process seamless. Software that offers a guided buying experience with pre-set admin controls and enables visual reporting dashboards are features you should consider. 
  4. Offer employee training. Provide comprehensive training on new tools and spending policies routinely. Software that comes with tutorials and a comprehensive resource hub is a good starting point for training, while your dedicated BSM team is another resource for employees needing additional support. 

How business spend management integrates with other business processes

Business spend management, together with Enterprise Resource Planning (ERP), Customer Relationship Management (CRM), and Human Capital Management (HCM), collectively address the core operating processes of every organization. The integration of these systems empowers businesses to make more informed decisions, improves operational efficiency, and drives growth in a competitive market. Embracing this integration is a step towards achieving financial control and long-term sustainability.

Enterprise Resource Planning (ERP)

ERP is a system that combines various business processes and functions into a unified platform. It streamlines core business operations for accounting, finance, human resources, supply chain management, and inventory control. Think of an ERP as the central database for all business operations. It’s essential, but it’s not a comprehensive solution that can handle every human resource or spend management workflow. That’s why most businesses invest in separate systems that address certain functions and integrate them with their ERP. Essentially, these systems extend the value of an ERP.

Businesses gain a holistic view of their financial health when adding BSM software — enabling financial data from both systems to provide deeper insights into spending patterns, supplier performance, and budget allocation.

Customer Relationship Management (CRM)

CRM is a tool that enables businesses to manage interactions with current and potential customers. It stores customer data, tracks sales leads, and streamlines marketing efforts to improve customer satisfaction and loyalty. By integrating a CRM system with a BSM system, marketing efforts are streamlined and optimized. For example, a purchase request for a marketing campaign is initiated in the CRM system and automatically routed to the BSM system. Finance then approves the request quickly and keeps track of budget milestones as the campaign progresses, working closely with the marketing team to ensure the campaign is effective.

Human Capital Management (HCM)

HCM includes the processes and practices for managing a company’s workforce, including talent acquisition, employee onboarding, payroll processing, performance management, and employee development. When integrated with a BSM system, businesses reduce administrative tasks, improve data consistency, and promote compliance by ensuring the accurate transfer of workers and their relevant HCM data and activity.

Challenges that businesses face related to spend management

A comprehensive business spend management strategy requires people, processes, and technology to work together seamlessly, but there are a few challenges that stand in the way of organizations achieving that.

  • Operating in silos. Spend management may mean different things to each business unit. For example, procurement cares about negotiating the best price for items, while finance wants to improve overall profitability. Because of this, each business unit may use different point solutions or tools, creating a system where data and processes are siloed. With BSM, spending processes and data are centralized, providing more opportunities to collaborate on cost-saving measures. For example, CFOs can partner with CPOs to minimize inventory holding costs and therefore improve profitability.
  • Using manual processes. Reliance on spreadsheets, emails, and other manual processes increases the chance of error and miscommunication. When that happens, it leads to inaccurate data and poor reporting capabilities for the entire organization. You can’t make smart decisions for the business if you’re working with misleading data. Manual processes also make enforcing compliance and preventing fraud more difficult, such as ensuring each purchase is on contract or preventing a supplier from changing an account number on an invoice. 
  • Collaborating locally and globally. Operational technology is the glue that holds organizations together in a digitally-dominated world, so choosing the right kind is essential to perform in today’s fast-paced business market. This means a factory director in Shanghai, China, requires real-time collaboration with the procurement team in Portland, Oregon, to ensure production isn’t halted due to supply chain disruptions in Rabat, Morocco. As our world becomes more interconnected and digital, organizations need streamlined processes and real-time collaboration tools to remain competitive. 

BSM helps organizations overcome these challenges by digitally transforming operations and creating a centralized system where it’s easier to track, manage, and analyze spending processes.

How business spend management software works

Business spend management’s origins begin with procure-to-pay (P2P) and source-to-pay (S2P) add-ons for ERPs in the late 90s. During that time, business-to-business (B2B) e-commerce innovation took off, leading to several new standalone solutions for BSM — including the first supplier relationships management software in the early 2000s. But like the other solutions on the market then, it didn’t address invoices or expenses. Functionality gaps meant businesses strung together different point solutions to manage their spending.

a brief history of BSM technology

It wasn’t until 2016 that the first comprehensive BSM platform that included procurement, invoicing, expense management, spend analysis, supplier management, contract management, and sourcing became available. Today, many software and platform options are on the market, each with a different set of functionality. However, the most common capabilities of BSM software include the following:

  • Procure-to-pay (P2P) → P2P covers the entire procurement lifecycle, starting from identifying a purchase need to the final payment to the supplier. The main benefit is streamlining and automating steps in the procurement process, such as requisitions, approvals, Purchase Order (PO) creation, and invoice processing and payment. One of the biggest challenges for businesses is matching POs to invoices. Modern P2P capabilities enable automatic two-way matching and eliminate expensive and cumbersome exception handling.
  • Strategic sourcing → Strategic sourcing helps identify and select suppliers to optimize costs, quality, and supplier relationships. It starts with using tools to analyze an array of data to identify sourcing opportunities. The next step is to run a sourcing event to get the best bid from suppliers and evaluate those suppliers based on a number of factors. Once a supplier is selected, a contract can automatically be created and sent for signature. Some software enables connecting sourcing with contract management and requisitions to improve on-contract spending and validate supplier invoices against contracted bid terms, which improves value capture.
  • Contract management → Tools for contract management help create, track, and monitor contracts with suppliers, customers, or other stakeholders. This includes the automation of creating contracts with predefined templates or pulling data from sourcing bids, tracking changes and updates, setting up alerts for contract renewals or compliance deadlines, and centralizing contract documents for easy retrieval. Businesses gain more value and improve compliance across the entire contract lifecycle with these tools. 
  • Supply chain design and planning → Preventing bottlenecks and navigating disruptions in the supply chain requires design and planning tools. A typical workflow for these tools starts with data modeling or creating a digital twin (a digital representation of the physical supply chain) to analyze different components. With a digital twin in hand, businesses can run various scenarios to assess the impact of changes in demand, supply, or logistics on the overall supply chain. Running these scenarios can be used for “what if” planning or be reactionary based on unexpected circumstances — helping to keep the business running smoothly. They can also identify the most efficient supply chain design to minimize costs or improve the efficiency of transportation routes to reduce carbon emissions. 

Looking towards the future, business spend management will be critical in navigating global risks and new government regulations — particularly those around sustainability, data, privacy, and generative AI. In order to support those efforts, IT will play an important role. It’s likely a rise in what’s called “composable” ERP strategies may emerge where the digital infrastructure for new solutions can quickly be integrated and customized completely in a cloud-based network. 

Choosing the right business spend management software for your company

Choosing the right BSM software for your company is all about balancing your immediate pain points with your long-term goals. Your focus may be three-way invoice matching now, but if your company grows to new markets, you’ll need software that supports automated multi-country tax compliance invoicing as well. Find a solution that scales with you, so you’re not constantly evaluating and buying new software every few months or years.

You’ll want a user-friendly platform that comes with mobile access, too. For example, employees who work directly with customers on the frontlines or those in a production facility need a quick way to manage expenses. For employees anywhere, easy-to-use technology ensures high adoption of company-approved purchasing practices.

Another important aspect to consider is whether the platform or software easily integrates with your current ERP and will work with future ERP migrations or upgrades. Some other questions include: 

  • What, if any, changes will need to be made to your current tech stack — and does your IT department have the resources to make them? 
  • How long will it take to go live? 
  • Can you consolidate other spend management systems to your new platform? 
  • Does the platform offer experienced, referenceable implementation partners for the transition? 

These tactical and logistical questions should be thoughtfully considered to keep the implementation project on track and within budget.

The advantages of Coupa’s Business Spend Management Platform

Coupa’s cloud-based and user-friendly BSM platform unifies processes and data across finance, procurement, and supply chain functions — empowering organizations worldwide to maximize value and operational efficiency with data-driven insights. Its advantages include three main elements: simplicity, adaptability, and connectivity.

Organizations that choose Coupa do so because it drives high levels of user adoption. It starts with a simple buying experience that any employee can do on any device, making it easier for AP and finance teams to process invoices and payments. It’s also easy for IT to deploy and maintain, thanks to quick ERP integration and three automatic security and performance updates each year.

Coupa’s platform is highly adaptable, too. Start by addressing your immediate needs like AP automation and procurement now, and add on additional features, like treasury and payments as your business grows. From supply chain design tools to source-to-pay to contract management, Coupa offers solutions that work together to harmonize your data and improve operations.

But more than anything, Coupa’s spend ecosystem connects businesses together to deliver unmatched value. Thousands of customers with trillions of dollars in spending data is anonymized and analyzed by AI for additional cost-saving insights for users. Know if you’re spending more on a certain category than others in your industry, find highly-rated and trusted suppliers, get support from vetted business partners, and understand where your company’s BSM performance stands with our yearly Benchmark Report.

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