10 Ways Businesses Can Contain Costs in Uncertain Times
When market conditions become difficult and unpredictable, companies understandably look at cost reduction as a way to maintain profitability and business continuity. Cost-cutting can provide fast answers to pressing questions such as, “How much can we reduce to stay profitable?” and “How soon can we execute?” And it lends a real sense of impacting an area fully within your control — costs — as opposed to revenue.
But is quick impact the same as right impact? As we’ve outlined in another discussion on cost control, straightforward cost-cutting (or “belt-tightening”) doesn’t necessarily free up more cash. It actually limits your choices to solve big financial, purchasing, and supply chain challenges at a time when choosing the right solution really matters. Instead, top leaders of resilient companies tend to ask themselves questions like:
- How can we differentiate value from waste?
- Which investments will position us for growth later on?
- How do we maintain our commitments to environmental, social, and governance (ESG) policies?
- Are there actions we can take that don’t require us to cut headcount?
This line of thinking hinges on spending the right amount in the right places at the right times. It’s a strategy of containing costs smartly rather than cutting costs broadly. Businesses that do this are fortifying their balance sheets immediately and simultaneously setting themselves up to thrive.
Investing in Business Spend Management-powered cost containment pays off quickly
It seems counterintuitive, but effective cost containment starts with investment. Without a complete, real-time picture of financial health, it’s extremely difficult to quickly reduce company spend or to redirect it. This is where the practice of Business Spend Management (BSM) is invaluable.
BSM provides a holistic, unified view of all your company’s spending and the ability to make decisions on that spending quickly. BSM gives you multiple levers to pull when it comes to cost containment:
• It lets you optimize for both risk and sustainability
• It increases your agility to invest at the right time
An investment in BSM pays off quickly, so you’re set up with advanced capabilities when you need them the most — during the next disruption, not after it’s already passed.
Keep reading to discover 10 ways to contain costs during uncertain times, all of which benefit immensely from a BSM approach, but can be applied in smaller ways even without one.
- Visibility — Know how and when spend occurs
- Control — Turn visibility into value with the ability to act rapidly
- Approvals — Fix and streamline the financial approval processes
- Suppliers — Drive digital adoption with suppliers
- Contracts — Understand your options to defer spending and retain cash
- Payments — Streamline and optimize the payments process
- Services — Identify overspending on labor and services
- Expenses — Improve and enforce travel and expense (T&E) policies
- Sourcing — Realize savings fast with strategic sourcing
- Risk & ESG — Reduce risk while retaining your ESG commitments
1. VISIBILITY: Know how and when spend occurs
Cost containment is nothing but a wish without complete visibility into business spend — a broad term we use to refer to purchases, cash, liquidity, payments, assets, and other financial obligations. Manual record keeping systems are, with good reason, often regarded as the culprit in this lack of visibility. Spreadsheets exist in and entrench data silos, and they’re impossible for finance teams to keep up to date in real time. What’s more, valuable data might not be captured within finance because no one has been put in charge of recording or tracking it. Companies may get hit with surprise bank fees, and finance and treasury may face surprise purchases if they lack visibility into the spend that effective P2P provides. The result: waste and blown budgets — especially bad when you're trying to contain costs.
"Forty-two percent of businesses rely on spreadsheets to manage their financial processes." — Coupa Survey, May 2022
Knowing how and when spend occurs across the business asks you to go beyond automating distinct areas and focus on harmonizing a range of spend and liquidity-related processes. On its own, automation leaves gaps in the picture of financial health it was meant to deliver. A BSM approach digitizes, automates, and — crucially — connects processes in procurement, invoicing, payments, cash management, and expenses, creating a single source of financial truth for the organization. You can finally see the complete picture of how, when, and where spend occurs. That’s an essential first step in deciding when and where to contain costs.
Every company benefits from complete visibility into spend. A single source of financial truth based on Business Spend Management principles increases financial agility, no matter how large or small your organization is. Scale AP teams into a strategic asset, close the books faster to meet financial goals, and spend smarter to fuel sustainable growth — even through disruption.
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2. CONTROL: Turn visibility into value with the ability to act rapidly
Visibility isn’t helpful if you can’t enforce the controls you put in place. Visibility must be paired with the ability to set up and enforce control over spend to contain costs. These days, with unpredictability as a reality of life, having control doesn’t mean having one fixed set of processes to manage costs. Instead, businesses need flexibility — different levers they can pull to manage spend, depending on the circumstances. Are you able to do more with less when needed? Can you avoid overspend just by looking at budgets? Can you increase control by making it easier for users to comply with spend management policies?
Taking the right actions that are appropriate to your situation is the key to resilience. Speed and agility are part of this — you don’t want to react too late. One of the key advantages of a BSM approach is that all your various spend processes are connected together, so you can take multiple actions at once, in a coordinated way, for example, tightening your purchasing approvals while also leveraging early payment discounts to help your business and your suppliers.
Another helpful cost containment tool is dynamic budget control. With real-time visibility into budget consumption, managers and approvers don’t need to wait for weekly or monthly reports to see how much money remains. This empowers FP&A teams to adapt budgets as priorities change, reducing spend in non-essential areas but continuing to invest in activities that will drive competitive advantage later on. And as part of a BSM platform, budget control helps eliminate spend leakage from procurement to payment.
Finally, look at your cycle times for key spending-related decisions. Long cycle times are a symptom of inefficiency and a warning sign that your agility to respond might be compromised. Work to shorten cycle times when possible.
3. APPROVALS: Fix and streamline the financial approval processes
Fraud comes with a hefty price tag. In its Global Economic and Crime Fraud Survey 2022, PwC estimates that annual payment fraud losses amount to nearly $32 billion. Among organizations experiencing the most disruptive incidents, almost 70% of attacks were committed by external perpetrators or collusion between external and internal actors. Unsurprisingly, approval chains for all types of spend (such as preapproved purchases, T&E, invoices, and treasury payments) as well as compliance requirements (including delegation of authority and segregation of duties) can help lower the cost of fraud and non-compliance.
But what about plain-and-simple human error? How costly is that? And what can finance and procurement leaders do about it?
The amount of overspend will vary from company to company, but employees generally want to make good spending decisions. In most cases, the right guardrails just aren’t in place. Having too few approvers opens the door to fraud and non-compliance with spend policies. Having too many approvers creates inefficiencies, bottlenecks, and poor relationships with employees and suppliers.
"Sixty-six percent of businesses believe their financial controls, including spending thresholds and approval chains, need improvement." — Coupa Survey, May 2022
Start by taking a look at your rejection rates for spend requests. They can indicate if your approval chain is inefficient or ineffective. Here are a couple of scenarios to look out for:
- Too many approvers in a given chain. Late-stage approvers almost always rely on approvals that have already been completed, and they rarely reject. But these pointless steps slow things down and those delays work against getting more of your spend preapproved in the first place.
- Very low rejection rates. These mean that the approvals are pointless. Those approvers should be reassigned as “watchers.”
If you’re working with manual systems or point solutions (or both), it can be tedious to revise approval processes to change your approval matrix and approvers for each category and spend amount. And it might take multiple rounds to perfect your setup — until it needs to change again.
A BSM approach offers a faster and easier way to contain costs by eliminating overspend. By having approvers connected on a cloud-native platform that has compliance built into its code, finance and procurement teams can create user roles and spend thresholds with ease. The right people are assigned the right roles across the finance function and work in line with defined policies that guide the right spend decisions every time. Users can even perform systematic security checks to make sure that payment details are correct. AI and community-powered fraud detection also help identify and flag patterns, such as multiple purchase requests just under the approval thresholds.
“Before, I would check if users got the right signatures on the right bills and the right sign-off, which I don’t have to worry about now because controls are there inherently in the system. I don’t have to check for human error.” — David Moore, former Finance Director at Saga
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4. SUPPLIERS: Drive digital adoption with suppliers
Focus on increasing supplier adoption of your procurement and AP technologies to increase efficiencies, identify opportunities for savings, and contain costs. Digital workflows with suppliers cut down on errors, clarify terms of the relationship, make it easy to track orders and payments, and can benefit suppliers by giving them visibility into their invoices and payments and enabling them to take advantage of early payment discount programs. When suppliers can maintain their profile information, ESG certifications, and bank information in a secure and self-service way, there's less manual admin work and the risk of fraud is greatly reduced.
Digitizing your interactions with suppliers is necessary today. There are many reasons for this — remote work, monitoring supplier performance, being able to find certified sustainable and diverse suppliers, extending Days Payable Outstanding (DPO), leveraging early payment discounts, monitoring for fraud (to name a few) — and they all depend on having a modern payments infrastructure. But during uncertain times, your relationship with your suppliers becomes even more important — from a financial and a fulfillment perspective. By encouraging your suppliers to transact digitally, you and they can have better visibility and tighter collaboration.
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5. CONTRACTS: Understand your options to defer spending and retain cash
Ensure that all of your contracts are kept in one digital repository to bypass time-consuming manual term reviews and automatically identify options to retain cash by deferring spending.
Part of pulling various levers to contain costs includes knowing what levers you have available. Your contracts with suppliers include essential information on the terms of your relationships. How quickly are you able to look up this information so you can see where there might be flexibility on deferring spending? Contracts also contain information that might protect you against things like price hikes, so being able to look at the terms of your supplier contracts in a fast, efficient way will let you know what options are available when you face a sudden need to contain costs.
6. PAYMENTS: Streamline and optimize the payments process
When you adopt a BSM approach to spend, you harness the power to get more out of every dollar from every transaction. Business Spend Management helps you establish the modern payments infrastructure that’s essential to managing working capital and prioritizing strategic activities.
Optimized payments open up multiple opportunities while allowing you to focus on retaining cash for the present:
- Negotiate payment terms and increase DPO to preserve working capital
- Support supplier continuity by paying them early in exchange for pricing discounts
- Pay long-tail one-time suppliers with virtual cards to earn rebate revenue and increase yield on liquidity
- Automate payments to increase efficiency and free up capacity for higher-value work
- Reduce fraud risk and enforce compliance by automating manual payment processes with touchless invoicing and automatic reconciliation
These types of win-win scenarios are available throughout the digital payments space. Digital payments also provide added controls, float, and rebate opportunities. Using virtual cards for payments lets you leverage the card’s billing cycle for additional DPO improvements.
7. SERVICES: Identify overspending on labor and services
With contingent workers as on-demand labor as part of many companies’ spending mix, make sure that you have visibility of all services spend so you can quickly identify and reduce any overspending on third-party labor, such as paying for overtime for lower priority work that can be rescheduled or delayed. As companies move through economic uncertainty, better management of services spend can provide a great mechanism for containing costs, from reducing investment and to ramping your workforce up and down as needed.
Having a unified process to manage contingent and contract workers as part of your overall supplier strategy can help you make sure that you’re compliant with labor law (avoiding potential legal fees, fines, and damage to your reputation). It also mitigates risk by making sure that your suppliers are properly vetted. At many companies, moving spend from individual scope of work (SOW) arrangements — where fees aren’t effectively negotiated — to sourced, contingent labor opens up significant savings.
8. EXPENSES: Improve and enforce travel and expense (T&E) policies
Does your organization’s current T&E management program help employees book travel and get expenses reimbursed, or does it create unique opportunities to optimize spend? An expense management system without an integrated travel booking function encourages users to purchase airfare at their own discretion, making high costs unpredictable and unnecessary. A robust T&E management system can also help contain costs by monitoring airfares and automatically rebooking the same fares at lower cost as prices change. Combining T&E with purchasing can give AI-powered insights into expensed spend that can be shifted to preapproval for added savings.
T&E spend policies may be clear and comprehensive, but they need to be properly integrated with other systems to guide users to the right decisions as they book travel and submit expense reports.
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Viewed individually, an expense report probably doesn’t make a dent in overall cost containment. But how many of those reports do your AP teams process a week? A month? Will that workload increase now that business travel is picking up? Non-compliant line items drive up costs in two ways. First, you’re probably paying more than you should. On top of that, AP teams need to invest precious time to handle those exceptions before approving the report.
Contain costs by enforcing the T&E policies your company already has in place. An AI-powered expense management solution can help you get better control of your review process and surface expense fraud and duplication for additional savings. Take Coupa Spend Guard. Spend Guard analyzes employee/supplier-level patterns at the employee and supplier level to prevent non-compliant spend, including in the T&E space.
9. SOURCING: Realize savings fast with strategic sourcing
Identify opportunities to consolidate your suppliers and negotiate additional savings. Tail spend (unsourced spend) offers a huge opportunity to find savings. However, because sourcing can become complex and require lots of resources from your sourcing team, sourcing tools are the key to help you to get the most value from your business spend.
The faster you can identify sourcing opportunities, and the more sourcing events you can run, the more you can maximize savings and bottom-line impact to your business. The key to doing this is to adopt a strategic sourcing initiative, but also to use technology to leverage smaller sourcing opportunities such as automation of routine events, community-powered purchasing programs, and sourcing automation to help to increase coverage in “tail spend” categories. Moving from no contract at all to having a contract can protect against price hikes and further improve savings.
The unification of sourcing, contracting, procure-to-pay, and supply chain design supercharges your ability to contain costs. Importantly, it also helps drive sustainability programs because you can optimize the supply chain design to reduce miles traveled, prioritize green transportation methods, and reduce inventory requirements and waste.
Going even further, a BSM approach to sourcing can mitigate risk. Within the context of supply chain design and suppliers, closer connections between supply chain and supplier risk can give planners advanced warnings of impending financial risk or lapses in ethical sourcing concerns. This can offer vital time to identify replacements and shift business and spend. Identifying single-sourced goods and services and developing breadth in suppliers can mitigate risk if conditions suddenly turn against one of your crucial suppliers.
10. RISK & ESG: Reduce risk while retaining your ESG commitments
Like in the downturns of 2008, 2001, or even 1980, companies are trying to cut non-essential spending while also mitigating risk, responding to external stakeholders concerns including sustainability, and remaining agile to invest at the right time for whatever the future brings.
During uncertain times, as companies focus on margins, the best companies also focus on changes in the risk environment. Companies who struggle with supply risk need to get out from under the pile of emergencies and find a way to shift from crisis management to a longer term strategy of ongoing risk mitigation. This way there’s always a mechanism for business continuity, regardless of supplier and supply chain issues.
Start by digitizing the process for the initial vetting and ongoing monitoring of suppliers (and their subcontractors) for multiple risks like information security, data privacy, and ethical sourcing. Digitizing inefficient, manual processes reduces operating costs and lowers the chance that you’ll experience lapses in these areas which can lead to heavy fines by regulators and brand damage. Make use of AI-powered platforms that proactively suggest alternatives to high-risk suppliers who can help your company respond quickly to elevated risks.
Sustainability must be viewed as a risk as well. Beyond the virtuous mission of doing good for the world, there’s also a consequence of ignoring your ESG responsibilities. Making the wrong moves in this space risks the value of your brand with consumers and investors and can even make you a target for regulators (as with the new German Supply Chain Due Diligence Act). Full visibility of all of your suppliers and their ESG risks is essential for all modern businesses. During a downturn, you may be focused on the short term of cost containment, but the prospect of being hit while you’re already down by an unexpected fine or an ethical scandal is something you especially don’t want. Get ahead of it.
Finally, help out. As smaller suppliers get squeezed by shrinking demand, their other customers holding back payments, or by a lack of funding, you, as a buyer, need a comprehensive system to monitor their viability risk. Because suppliers who are squeezed may drop quality and other performance measures, you need to be aware and constantly monitor their interactions to see how that supplier is performing. Offer help proactively — we’re all in this together. If you get an early indication that one of your critical suppliers is struggling, you may choose to send more business to them or offer more generous payment terms to prop up their cashflow.
In the current macroeconomic environment with rising costs, high inflation, increasing interest rates, and global market uncertainty, one thing is clear — we’re going to be in choppy waters for a bit. Building a resilient organization is key to navigating current and future disruptions.
“There are a number of things our treasury team did — increasing the frequency of cash reporting, focusing on expense reduction, stopping M&A for a period of time, growing working capital. So we were able to weather the storm in the short to medium term. And obviously, we came out on the back of it a lot better than originally anticipated as a result of those strategies.” — Adam Watts, Senior Treasury Program Manager at Dentsu International
For fast growing companies, this is not a time to make hasty decisions. It's time to pause and reassess. The resilient performers that will emerge from this environment in a strong position for growth.
For larger businesses, be prepared to weather the future storm. Get ahead of uncertainty with smart discipline rather than broad clamp downs. Visibility and control via digital capabilities will be your friends and path to resilience and rapid payback, no matter what the future brings.
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