How maverick spending appears
Ever gone through the company accounts and found a raft of unidentified purchases?
“Ghost spend,” otherwise known as maverick spend, can be either intentional or accidental, and causes huge problems with cash flow and operations. It’s also incredibly common, even accounting for up to 80% of all expenses in a company without sound spend management processes.
Any good finance function should find better ways to identify and prevent maverick spend. This article helps you spot ghost spend and install better systems to eliminate it in the future.
A maverick spending example
Let’s say that your procurement department has negotiated a discounted rate from a preferred supplier for a specific product over the next 12 months. But this month, someone from another team gains access to the company credit card and ignores the existing contracts.
They put in an order with an unapproved vendor, for the wrong volume of product. Since the credit card is shared, it’s not easy to identify who made the purchase, or why. Nobody is coming forward, either.
Maverick spend has occurred not only in the fact that your employee hasn't ordered from the preferred vendor, but they've deviated from the general setup by ordering the wrong amount for the wrong price.
Unfortunately, these mistakes happen more than you think.
6 ways to prevent maverick spend
Rogue spending may not happen all too often. But when it does, it can cause severe consequences within your business. Instead, you can implement specific systems, tools and processes to inherently prevent maverick spending.
A clear expense policy
Outlining a clear expense policy is the most important function to help your finance department manage overall spending. Well-defined spending guidelines build controls for spending into the everyday process.
For example, your company expenses policy might outline details with regards to strategic sourcing, agreed contracts, purchase order approvals, or even office supplies. There are a number of helpful expense policy guides to help companies create the ideal protocol for their business.
An expense policy that prioritises clarity leads to healthy bank accounts without overspending. Plus, employees will know the boundaries of the policy without having to waste the finance team's time with simple questions.
Remember, the more detailed and defined your procurement processes, the better the chance for the business to hit its spend goals.
Easy visibility into spend
With more awareness around the company's current and past spending patterns, the finance function can better guide purchasing decisions.
Moreover, spend visibility avoids staff making redundant or duplicate purchases, since they can easily see other purchase orders and ongoing subscriptions.
Empower your employees with spend visibility to increase both transparency and accessibility. Analyze expenses at a granular level and create reports to highlight patterns, which then informs the aforementioned expenses policy.
Employ real-time spend tracking
Too many financial departments make the mistake of waiting until the end of the month to begin tracking spending. This leads to rushed work and, of course, mistakes.
Instead, continuous financial management throughout the month lets finance teams identify errors immediately and begin rectifying problems before the consequences really begin. Furthermore, businesses who track spending in real-time are more adaptable towards overall strategy changes.
It’s an important part in the fight against maverick spend.
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