Managing a company’s expenditures is crucial to increase its profitability and it is the responsibility of Chief Financial Officers (CFO) to ensure that the firm’s monetary goals are met by adopting every measure possible.
A spend management platform can help top financial officers in this endeavour by allowing them to track where the money is going and who is spending it – among many other things. That is the reason why this type of software has become an asset to corporations recently.
In this article, we will explore five practices that CFOs can adopt to monitor and manage expenditures in a way that increases the company’s profit margins down the road.
#1 – Track the performance of relevant expenditures over time
Relevant expenditures within any organization are those that can have a dramatic effect on the financial performance of the business if left unchecked.
Think for example about purchases of raw materials, payroll, rent, and utilities. These are all disbursements that can materially affect profit margins if they start to exceed the company’s pre-defined quota for any reason.
With this in mind, tracking the evolution of these expenses and adopting timely policies to curve any unexpected spike is the first and perhaps most effective measure that CFOs can take to reduce the company’s overhead and increase its profit margins.
#2 – Establish spending-related goals for all cost centers
One great way to align the interests of employees with those of the organization is to create incentives that promote and reward any activity or behavior that contributes to accomplishing the firm’s objectives.
When it comes to spending, the money that comes out of the organization is often perceived as limitless as nobody’s pockets are directly affected by the expenses being made.
With this in mind, one way that CFOs can encourage mid-level managers to reduce their overhead is to create goal-oriented incentives that encourage a savvy reduction in their department’s expenses without affecting its productivity or the general ambiance of the workplace.
#3 – Reduce the number of authorized payers
The higher the number of people who are authorized to disburse money on behalf of the company the more difficult it will be to keep track of unnecessary or unjustifiably elevated expenditures for certain concepts.
With this in mind, spend management platforms have introduced features that limit the number of people who have access to the company’s payment methods or that can approve the disbursement of money.
By doing this, a CFO can instruct this smaller group of people about the policies and procedures that they should follow before approving and disbursing the company’s money.
#4 – Increase order sizes for higher discounts
Cost-cutting is not just a matter of spending less. It can also be accomplished by spending more overall, but less on a per-unit basis. The first step to analyze the possibility of saving money via larger order sizes is to analyze what kind of items or materials the company consumes the most.
In some cases, the savings that can be obtained from buying larger quantities can even justify taking external financing if the money saved is higher than the amount spent on interest and commissions to secure the loan.
Down the road, these savings could have a dramatic impact on profitability, especially if they are involved in the core process of the business – i.e. manufacturing process.
#5 – Prioritize the use of the most advantageous payment methods
Most credit card companies offer rewards for using their instruments at certain places such as cash-back rewards. By using these instruments, businesses can generate financial gains or save money via store-specific deals.
A CFO who is mindful of the rewards that each of the company’s payment methods are offering can use a spend management platform to prioritize the use of the most advantageous instruments.
Bottom line
Financial officers are largely responsible for how a company’s expenditures are made and they can influence profit margins by introducing measures that reduce costs across the board.
All of the recommendations outlined above can be easily implemented by using a spend management platform that generates insightful reports. These reports will allow managers to make informed decisions about how to spend the organization’s money more productively.
