7 Ways to Control Employee Spending
By Michael Grace | American Express® Freelance Contributor
4 Min Read | September 08, 2022
Summary
When employees overspend, it’s often because the company lacks an established expense management strategy. This can lead to process gaps or less visibility into where money is going. For example, the employee who buys something from one vendor, when the same product is available for 25% less from another, might not be aware of the less expensive alternative. And the company that reaches its client entertainment budget four months before its fiscal year ends could likely improve its expense tracking visibility to get a picture of what is happening before it’s too late.
A handful of process changes and policy shifts can help companies get better control of employee spending. Here are seven expense management tactics that can help produce significant benefits, without major adjustments.
1. Set a Category-by-Category Budget for Employee Spending
It’s vital to have a target for aggregate employee spending, and most companies do. From a cost control perspective, however, even more value comes from having goals for the different line items that add up to the aggregate number. For instance, a small business may allocate $900,000 for business travel, $400,000 for client meals and entertainment, and $45,000 for office supplies. Comparing actual expenditures against those targets on a monthly or quarterly basis provides an early indication of where spending needs to be curtailed.
2. Create Transparency into Employee Expenditures
Companies can correct spending problems only if they know the problems exist, and can put the brakes on excess spending only if they are notified of the excesses in a timely way. One of the best ways to achieve such transparency is to digitize spending reports; by doing so, all spending is reflected in real time in a centralized system. With a centralized tracking system, a company can instantly see whether an employee is spending too much on entertainment, for instance, or whether a business unit has already reached its discretionary spending limit midway through a reporting period.
3. Embed Spending Rules and Spending Limits in Systems
A system that spots potential spending problems at the instant they’re happening – or better still, that alerts financial managers of any excess spending – is an excellent starting point for improved employee spending control. Even more effective, however, is if the spending mechanism has built-in cutoffs. Such cutoffs can be triggered by employees trying to buy goods or services that are prohibited by an employer, such as liquor or theme-park tickets. With cutoffs in place, there can be a shutoff mechanism programmed into the buying tool, making purchases temporarily impossible.
4. Require Employees to Transact Through Company-Issued Credit Cards
Corporate cards and virtual credit cards can give employers a considerable amount of control. These cards can be programmed with dollar-based spending limits or to prohibit hard-to-track or unhelpful spending. Credit cards can also help companies achieve centralized oversight and goals of transparency – both of which are integral to preventing excess employee spending and waste. For more, read “Does a Corporate Credit Card Make Expense Management Easier?”
5. Restrict Purchases to a Short List of Vendors
Another mechanism for controlling employee spending is to allow employees to buy only from a specified group of preapproved vendors. A short list of airlines, hotel chains, and technology providers may be created, for example. This makes it less likely that an individual employee or business team will go outside of the supplier “family” to select a vendor or vendors without authorization – a circumstance known as “maverick purchasing.” By giving all of their business to the same group of vendors, over and over, companies may be able to gain the leverage needed to enjoy discounts based on aggregate purchasing.
6. Rethink the Processes for Buying Office Supplies
When it comes to office supplies, a few smart policies and a little bit of organization go a long way. On the policy side, employees shouldn’t be able to go to a closet and just grab supplies. Consider assigning a “gatekeeper” for the supplies, and ensure that those requesting supplies sign for anything they use. You may want to give the gatekeeper a financial incentive to minimize expenditures on office supplies – perhaps an end-of-year bonus based on any savings achieved. Certainly, in an era of digital records and tracking, there should an opportunity to reduce paper costs.
7. Centralize Subscriptions
Centralizing purchases with recurring fees gives companies another opportunity to negotiate prices. Individual employees shouldn’t be able to directly purchase subscription products, such as business news services, industry databases, or cloud-based software. Instead, such purchases should require the approval of a financial manager or the procurement department. A more central buying structure such as this increases the company’s ability to track its subscriptions and its buying leverage.
And even if the price itself can’t be brought down, centralization may highlight opportunities to share subscription products, rather than buying multiple versions of the same product.
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