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Controlling your company's spending is more complicated than it might seem at first glance. Line item overhead and cost of goods sold (COGs) are easy to track, but what about those small, forgotten expenses, like subscriptions and recurring memberships? They seem insignificant and are often overlooked. But in reality, that’s a mistake since they can quickly add up.
In this article, we’re discussing zombie spend. It’s endemic to companies of all sizes and can easily wreak havoc on your businesses finances if stopgaps aren’t set up. Once it begins, zombie spend affects cash flow, one of your biggest and most important assets.
What is zombie spend?
One of the best examples of zombie spend is the unused SaaS subscription that’s been set on autopay with the company credit card. Employees will sometimes subscribe and either forget the existence of that subscription, sign up for a new piece of software, and never unsubscribe from the first one. Your company continues to pay for both, but there are no human users benefitting from it. That’s zombie spend.
The long-term issue with zombie spend is that it can show up in multiple areas. Recurring subscriptions and membership fees are the most obvious. Office supplies that are placed on auto-delivery are another. Have you checked your supply cabinets? If you’re overstocked on paper goods, it might be the result of automated orders. That’s zombie spend also.
This type of spending is difficult to detect because it could be buried in invoices that also include legitimate spending on supplies or subscriptions. Accounts payable departments don’t have safeguards to prevent that so your company may need to do a full spending audit to uncover it. We’ll get into that and solutions to prevent zombie spending below.
Understanding the causes of zombie spend
As we stated earlier, zombie spend is a common yet very preventable problem. Eliminating it starts with understanding what causes it in the first place. Here are some common spend management issues that may result in zombie spend:
1. Lack of spend control
If your business doesn’t have spend controls, you’re opening yourself up to reckless spending with very little oversight. That’s why it’s crucial to set up spend control policies early. When employees can charge anything to their company credit card, without an approval process of any kind, that leads to zombie spend. Once it happens the first time and gets through, expect the process to continue.
2. Out of date expense insights
Without real-time expense insights, the information your accounting department receives is out of date by the time it crosses their desk. That’s damage control, not prevention. Seeing expenses in real time allows you to have greater control over cash outflows. Certain expenses can be denied. Others can be made policy or eliminated in the next cycle.
3. No insights into your spending across categories
Expanding on the previous point, insights need to be categorized, but that’s impossible without having accurate expense categorization. If you aren’t properly categorizing your expenses, your insights into your spending are going to be blurred. This is a policy problem and a system issue. Miscategorization is common when it’s the employee’s responsibility to file expense reports.
4. Sticking to manual processes
Sticking to manual processes to track business expenses is a surefire way to leave yourself open to zombie spending. Manual reporting and reimbursement processes are not efficient. The employee could enter the wrong amounts, receipts for reimbursement may be unreadable, and accounting departments can often miss erroneous entries.
Business practices that can reduce zombie spend
Let’s chat about solutions. Now that you understand what zombie spend is and what causes it, we can dive into exactly what you can do to prevent it going forward. The following five areas are where most zombie spending can be prevented:
1. Spend control
Everything we’ve spoken about so far comes down to spend controls. If you can control what employees are purchasing with your company funds, you can eliminate zombie spend. This includes limiting where they can spend money, approving only certain categories of spending, and implementing spending limits to control cash outflows.
You may need to upgrade your entire expense system and modify company policies to achieve this. Issuing corporate cards to employees instead of relying on employees to use their own funds and submit for reimbursement gives you more control over the expense process. It also opens the door for automation and eliminates troublesome manual reports.
2. Real-time business expense tracking
Discovering an erroneous or zombie expense after it’s already been processed and reimbursed doesn’t save you any money. It might give you some insights to correct the behavior going forward if you happen to catch it. Otherwise, that pattern will repeat itself. Real-time business expense tracking creates the option of implementing spend controls in the moment.
For this to be effective, there needs to be a solid spending policy in place. If employees are only allowed to expense in certain categories, unauthorized expenses can be denied immediately, and employees can be notified so they don’t make the same mistake again. The spending policy backs up that decision. Ideally, it should be an easily accessible digital document, so all employees can review it at any time.
3. Spend analysis
Analyzing company spending can uncover areas of concern and might expose some of your zombie spending. The problem with most systems is that spend analysis requires extra steps that put a strain on personnel in your accounting and bookkeeping departments. Those extra steps can also be cost prohibitive, so many businesses do them infrequently or not at all.
Think about this from a manual reporting perspective. Reports are submitted and approved, reimbursements are authorized, and then you’re on to the next cycle. Spend analysis on those reports would start with consolidating them on a spreadsheet. Whose responsibility is that? Some expense software will do it for you. Others offer spending analysis tools.
4. Expense automation
Expense automation is your friend. Automating your expense system streamlines the accounting process for your company. A good example of this is reimbursement. If expenses are authorized and in policy, there’s no reason to delay reimbursement.
Several facets of an expense system can be automated, including spend controls. This is simple if you’re using corporate cards instead of personal credit cards for expenses. Look for a system where you can incorporate spending policies, spend controls, and reimbursement into one automated system. You’ll also want to be able to run automated expense reports and analysis.
5. SaaS management
How many times have you looked at your credit card statement and wondered, “What is that charge for?” Business accounting departments do the same thing, if they have a system in place that can detect that type of thing. That’s what we’re talking about today.
SaaS management should be handled by the company, not the individual employee. Spend controls can prevent them from signing up for subscriptions. Spending policies can forbid them. Business charge cards can be blocked from paying for them. If your employees need a SaaS subscription, explore it as an option for the whole company.
Ramp can help you prevent zombie spend
Unlike a zombie movie, we didn’t spend the last few minutes scaring you only to leave you with no way out.
Ramp can solve all these issues for you, whether it’s implementing an expense or procurement policy, digitizing receipts, tracking invoices, categorizing spending to simplify tracking, or implementing spend controls. Visit Ramp.com to learn more.