Business owners and financial officers of medium to large-sized companies will probably agree that when it comes to cost-cutting or expense management, managing an organisation's day-to-day operational costs often proves to be the biggest stumbling block. This is particularly true in the GCC and Middle East, where the region is still largely focused on cash payments, which are widely regarded as being difficult to track and monitor.
Processing invoices involves considerable effort and various complicated procedures for finance officers, opening the doors to a greater margin for errors and inaccurate results. Invoices have to be matched with purchase orders, data has to be entered manually into accounting programmes and storing devices, payment approvals have to be obtained and payment inquiries from suppliers have to be fielded regularly.
And if this unwieldy process has to be repeated for every payment made by each employee in the organisation, the level of coordination and effort required becomes mind-boggling.
Attempting to curtail operational costs and improve cash flow on a regular basis is therefore akin to an amateur juggler trying to manage the movement of several balls in the air at the same time, without dropping any. Recent studies by Aberdeen Group have proven conclusively that if these payments were processed electronically, it would be 30 per cent cheaper, far more accurate and about 25 per cent faster than following a paper trail for payments.
Let's take this one step further. What if finance officers were able to access the consolidated travel and entertainment spending patterns of all employees in an organisation? Wouldn't that give them transparency over spending to allow them to negotiate better deals with airlines, hotels, transport authorities, restaurants and the like?
Indeed, with access to such knowledge, financial savings could be availed on various types of spending over a longer term, having a wider effect on business strategy as a whole. The visibility and control over an organisation's expenses would afford finance officers the opportunity to negotiate better terms with suppliers by analysing transactional data. There would also be significant time savings as employees use an automated expense programme.
For example, if the management was aware that four senior and one junior employee were travelling on business to three different locations at the same time, the organisation could use this knowledge to negotiate better deals on all tickets via the same airline or the same hotel chain at various locations.
Not only would the company benefit in cost terms and be able to take advantage of the loyalty programmes associated with hotel chains and airlines, the junior employee could also have the advantage of greater comfort as part of the wider expense management programme.
In this age of austerity and cost control, it is imperative that companies deploy dedicated expense management solutions that are both manageable and sustainable. By putting in place solutions of this kind, companies can simplify the management of expenses. The resulting transparency enhances their ability to drive savings and control over spending, giving the organisation the ability to improve cash flow.
And there is no need to reinvent the wheel. Putting in place effective expense management solutions can be done by simply building a mandate around the use of a corporate card that not only provides finance teams with spending visibility but allows them to track and evaluate expenditure, which prompts more responsible use of expenses.
Indeed, many payment service providers have developed expense management solutions that enable their clients to consolidate all travel expenses into a single account that can be billed centrally to enable maximum control.
Additionally, the enhanced visibility ensures that the solution is both cost-effective and time-efficient. Statements of accounts can be consolidated to enable centralised approval and payment, in addition to providing easy and effective monitoring of travel expenses for each employee.
But expense management solutions are not magic wands. To produce effective cost efficiency results, an expense management solution must be used effectively in the context of a well laid-out corporate expense policy. Every scenario in which an expense may be incurred should be outlined.
Most importantly, the corporate expense policy must be communicated clearly across all aspects of the business and staff must be engaged to ensure they are part of the decision-making process. Finally, it is imperative to instil a corporate culture that nurtures this policy through taking the staff into confidence and retaining their trust.
Adam Jones is Middle East vice president and head of commercial business, American Express Middle East