What is business spend management (BSM)?

Having a good handle on managing your company's expenditures is critical—that's business spend management (BSM) in a nutshell. BSM is an expense management approach that combines smart strategies with powerful technology to optimize spending across all departments and categories. It also helps you achieve improved cost savings, efficiency, and control of your cash flow.

While this may sound simple enough, BSM goes much deeper than tracking receipts and managing invoices. It also involves sourcing the best deals with vendors, analyzing spending patterns, and identifying opportunities to cut costs. BSM is all about showing exactly where your money goes, why it goes there, and whether it's being spent wisely.

Before exploring business spend management in greater details, let’s look at the primary categories of business spend.​

Categories of business spend

Before managing how your company spends, you have to understand what you're spending money on. Remember, a well-categorized and tracked spend portfolio helps you ​save money and make informed decisions about resource allocation, vendor selection, and future investments.

Here are some common business spend categories​:

Direct spend

Direct spend includes costs directly related to producing goods or services, such as raw materials, inventory, and manufacturing equipment. Some examples of these categories include:

• Raw materials: Wood for furniture, textiles for clothing, semiconductors for tech manufacturers
• Inventory: Finished goods stored for sale, spare parts for maintenance, merchandise waiting for distribution
• Manufacturing equipment: Assembly lines, printing presses, research and development tools

Indirect spend

Indirect spend is associated with costs that support business ​operations but that don't directly contribute to production, like office supplies, travel expenses, and professional services. Here are some examples:

• Office supplies: Paper and printing cartridges, furniture and equipment, cleaning and maintenance supplies
• Travel expenses: Employee business trips, event attendance, vendor meetings
• Professional services: Legal consultations, marketing agencies, IT support

Employee expenses

Employee expenses include reimbursements for travel, meals, and other business-related purchases by employees. Some examples include:

• Meals: Client lunches, business dinners, team-building events
• Transportation: Taxis, ride-sharing, mileage reimbursement
• Accommodation: Hotel stays during business trips
• Mobile phone plans: Reimbursed business-related calls and data usage

Capital expenditures

Capital expenditures are investments in long-term assets like machinery, buildings, and software. Here are some examples of these three categories of capital expenditures:

• Machinery: Upgraded factory equipment, new delivery vehicles
• Buildings: Newly constructed offices, expanded warehouses, renovated facilities
• Software: Enterprise resource planning (ERP) systems, design software

Breaking down these spend ​categories further helps you understand exactly what’s driving up costs within each department or project. For instance, a closer look at spending on office supplies might reveal excessive paper use or unused subscriptions. Or, reviewing travel expenses could reveal inefficient booking practices or unnecessary trips. Data analysis supported by BSM helps identify areas that could use improvement so you can develop cost-saving strategies.

Business spend management activities

BSM isn't a one-time fix for spending issues; it's a continuous spend management process​. But once you're equipped with it, you can transform your business from passive spending to strategic spending. In addition, the right tools can help facilitate growth and success.

Some ​key BSM activities include procurement, travel and expense management, invoice processing, payment automation, and data analysis.​​

Procurement

The procurement process​ involves strategic sourcing beyond finding the cheapest supplier. You can leverage BSM technology to compare bids, analyze quality, and identify the most valuable partners. Managing your BSM spend categories helps to consolidate purchases, negotiate bulk discounts, and standardize specifications.

Vendor management and negotiations are easy with business spend management software to help you find the most favorable terms. Automated tools can track price competitions and contract performance, holding vendors accountable. The source-to-pay ​​software also helps you keep track of important dates, automate renewals, and identify performance gaps, helping you secure high-value contracts.

Travel and expense management

BSM allows you to streamline travel-related reporting, freeing you from the time-consuming hassle of using paper receipts. You can use mobile expense reporting apps with optical character recognition (OCR) for easy receipt capture. These apps can integrate with your existing accounting and other cloud-based systems to automate expense categorization and reimbursements.

You can also use BSM as a policy enforcement tool. This helps prevent out-of-policy spending by applying smart spending limits and automated policy reminders. The tools are designed to send notifications to​​ employees when they're reaching their budget limits or violating policies.

Additionally, BSM can be used to partner with preferred airlines and hotels to negotiate corporate travel discounts. When you integrate online booking tools with your expense management system, you're able to streamline ​travel arrangements and expense tracking.

Invoice processing

You can get rid of manual data entry errors with OCR technology that automatically populates invoice information into your system. This saves you time, minimizes errors, and offers faster processing.

BSM also provides automated electronic approval workflows, which can route invoices to the appropriate stakeholders for review and authorization. This speeds up payments, improves vendor relationships ​​and supplier relationships, and reduces manual work.

Lastly, BSM helps you maintain a central repository for all invoices. That way,​ information is accessible from anywhere, at anytime.

Payment automation

Electronic payments made using BSM allow you to ditch the checkbook. Instead, you can schedule and execute ACH or wire transfers for faster processing, lower costs, and better cash flow management.

Consider issuing virtual cards to your employees to use for specific purchases. You can restrict spending to predefined spend categories and budgets. This enhances control and risk management.​

Data analysis

Real-time insights mean you don’t need to rely on spreadsheets. BSM platforms have dashboards where you can see your spending data immediately, categorized by department, vendor, or expense type. This real-time visibility lets you make decisions faster than if you had to wait for monthly statements.

Data analysis is essential for uncovering spending patterns, hidden cost drivers, and other trends. Advanced analytics tools also help with predicting future trends, optimizing budgets, and identifying savings opportunities. You can also compare spending data against industry benchmarks to identify what to improve to stay competitive.

Benefits of business spend management

Implementing a business spend management approach involves some doing and comes at a price. So, why then should you invest in BSM? Because the benefits are plentiful and go far beyond saving a few bucks in the long run.

Here are some of the benefits of business spend management:

Cost reduction

• Negotiate better deals: BSM provides tools for comparing vendor prices and securing the best possible terms.
• Eliminate waste and fraud: Increased spend visibility helps identify and prevent wasteful or fraudulent expenditures.
• Optimize budgets: Data-driven insights allow you to allocate resources more strategically and avoid overspending.

Improved efficiency

• Streamline processes: Automation and centralized spend management ​​platforms reduce manual tasks and paperwork.
• Faster approvals: BSM tools automate expense reporting and invoice processing, improving cash flow.
• Better decision-making: Real-time spending data empowers informed financial decisions.

Enhanced compliance

• Adhere to company policies: BSM tools can automate policy enforcement and ensure regulatory compliance.
• Reduce risk of errors: Centralized ​​​​processes and controls minimize the chances of human error and fraud.
• Improve audit readiness: Streamlined data and automated records simplify the audit process.

Increased spend visibility and control

• Gain a clear spending picture: BSM provides consolidated data on all your expenditures across departments and categories.
• Identify hidden costs: Analyzed spending patterns to uncover hidden expenses and optimize budget allocation.
• Make informed decisions: Data-driven insights empower you to make strategic choices about your business finances.

Integrating BSM into your business's spend management strategy offers an abundance of opportunities to improve cost savings, efficiency, spend visibility, control, and compliance.​​

What is a business spend management (BSM) platform?

Imagine a powerful spend management tool at the center of your financial business ​operations. It's automating tasks, analyzing data, and providing you with actionable insights. That's the beauty of a BSM platform.

If you've been looking for a better way to manage business expenses, you'll be met with an overwhelming number of solutions. However, as with most technology, spend management systems​​ aren't all created equal. Costs aside, they vary widely in features. So, it's important to take the time to shop around and compare features to see which spend management platforms are most suited to your business's needs.

In general​, the best BSM platforms offer the following tools:

• Centralized platform
• Automate workflows
• Real-time data and analytics
• Policy enforcement
• Vendor management

Investing in a quality BSM platform is similar to hiring a dedicated financial expert for your business. Technology simplifies your finance-related ​​​​business operations, saves you money, and gives you complete control over your spending.

Automate your business spend management with Ramp

Solving business spend management issues has never been easier. Ramp's expense management software helps you to spend smart and effortlessly manage expenses. You get a corporate card with the ability to control spending before it even happens.

Employee cards have built-in policies to prevent unapproved spending. Our spend management solutions make expense reports unnecessary, and automating routine tasks lets you focus on strategic decisions rather than manual bookkeeping.

You can automate your business spend management with Ramp to level up your purchasing process and increase your company's bottom line. To get started, watch our demo and sign up for a free account.