As your company scales, managing vendor spend becomes more and more challenging. This is because a lot of your vendor spend grows as you grow - your customer base, your marketing spend, your headcount, etc.
Most CFOs and finance teams don’t have the means to keep track of all the month-to-month changes and their underlying drivers. This isn’t too surprising given that only two out of every ten companies use dashboards to track vendor costs, and even then, those dashboards usually only take a monthly snapshot of your spend and don’t contextualize the costs within a bigger picture.
Answer these questions to get the big picture: how has usage changed over time? What are the trends with usage and results, and how do those trends correlate to the KPIs of your business? Are you seeing operating leverage, is there any disconnect? By answering these questions, CFOs and finance teams can better control and manage their vendor spend.
Later, we’ll discuss a new accounts payable solution that actually provides analytics to track vendor costs and their underlying cost drivers. This new accounts payable tool analyzes line-item details from invoices to discover the expense drivers that make vendor costs so volatile. It’s a must-have for finance teams and budget owners, helping companies of all kinds save money. But first, let’s take a look at some common tricks vendors use and how they might be unnecessarily adding thousands of dollars each month to your vendor spend.
Vendors add many costs to an invoice. Some of these are optional extras not included in the initial pitch; others are mandatory charges that the vendor expects you to pay. Some extraneous costs include:
Sometimes the price of a product or service increases, but the vendor isn’t clear about this during contract renegotiations (perhaps introductory pricing promotions expired, and you now have to pay full list price). Other times, certain costs are outside of the vendor's control. Think credit card payment fees, currency conversion fees, and other surcharges.
Then there's the age-old problem of human error. Sometimes a vendor adds something to your invoice by mistake or hasn’t updated their billing system to reflect the improved pricing you negotiated, and nobody on your team realizes until it's too late and you've overpaid them. Trying to get this money back from the vendor might be more trouble than it's worth. There are countless other examples of how errors and overpayments occur with vendor spend.
You will likely save money by making just a few enhancements to your vendor spend management workflows:
Negotiation is a fine art, and it can be a daunting experience, especially for smaller finance teams. Vendors hire savvy salespeople with years of experience who try to convince purchasing teams to sign up for add-ons and extras they may not know they don't need. They’ll offer long free trials for their latest features that end up getting forgotten and become another line-item buried in that vendor’s monthly invoice. But negotiation doesn't have to be a dog-eat-dog experience. Account managers are often flexible because they know your company can take its business elsewhere. Here are a couple of negotiation tips:
Every finance team should conduct a flux (or variance) analysis after closing the books to understand exactly what drove the changes in your vendor spend.
A flux analysis is an evaluation of fluctuations in amounts spent over a certain period of time. An effective flux analysis answers “why” changes occurred by identifying their underlying causes. Perhaps new items or services were added. Or usage/volume of a specific item increased. Or pricing for certain services rose (we don’t like this!)
Using the latest software is a surefire way to improve your management of vendor spend. Meet Glean. It's the AI-powered spend intelligence platform for CFOs that want to reduce vendor costs and save their hard-earned money. With Glean, you can:
Vendor spend is notoriously volatile, resulting in large month-over-month fluctuations that are not easy to keep track of with common AP & BvA processes. By investing in Glean’s spend intelligence software, you can analyze line-item details, identify cost savings, negotiate better contracts, and improve spending accountability within your organization.
Do you want to reduce cost drivers, improve spending accountability, and optimize vendor negotiations? Glean is a smart AP solution that provides unparalleled insights into cost driver analysis and more.