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Step-By-Step Guide for an Effective Procurement Audit (With Checklist)

Mohammed Ridwan

January 29, 2024

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Some common procurement challenges are inadequate documentation, ambiguous contracts, insufficient internal controls, risk management, and non-compliance with industry standards.

There are only two ways to identify such issues: wait for repercussions to disrupt the supply chain or conduct a procurement audit.

This post will cover how to conduct a comprehensive procurement audit with a step-by-step process and checklist.

What is a Procurement Audit? 

A procurement audit is a systematic review of the procurement process to ensure compliance, efficiency, and effectiveness.

The auditing team carefully reviews documents like contracts and purchasing records in a procurement audit. It examines each phase of the procurement process, from bid assessments to contract management, to identify discrepancies and optimize efficiency. The main goal is ensuring adherence to regulations, minimizing risks, and refining procurement practices for optimal organizational outcomes.

How To Prepare for a Procurement Audit 

For an effective procurement audit, consolidate all the documents with proper access for relevant stakeholders. Employ procurement software to create a single source of truth and avoid unnecessary friction.

Implement access controls to restrict permissions to view-only access for sensitive procurement data. This step ensures that only authorized individuals, such as the audit team, can access critical information, minimizing the risk of unauthorized alterations or data breaches.

Here is an exhaustive list of documents you will need for the procurement audit:

  1. Procurement policies and procedures, including the updates or revisions to these documents
  2. Contracts and agreements with vendors — amendments, renewals, or modifications to existing contracts
  3. Purchase orders issued during the audit period and supporting documentation for each purchase order
  4. Invoices related to procurement and payment records, including dates and amounts paid
  5. Goods received notes and delivery records, including dates, quantities, and item condition
  6. Vendor profiles, including contact information and details of vendor qualifications and any evaluation or performance assessment reports of vendors
  7. Bid and proposal documents, the evaluation criteria, and scoring records for vendor selection
  8. Records of communication that are related to procurement decisions and processes — correspondence with vendors, internal departments, and other stakeholders
  9. Documentation outlining internal controls within the procurement process — evidence of segregation of duties and authorization processes
  10. Previous internal and external audit reports and any actions taken or improvements made based on earlier audit recommendations
  11. Procurement budgets and any adjustments or variances with the original budget
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Five Steps for Conducting a Procurement Audit

With all the documents ready, begin the procurement audit process. Here is an end-to-end five-step audit process with checklists for a successful audit:

1. Gather Stakeholder Input 

Conduct interviews with key stakeholders to gather insights. This adds a layer of understanding regarding the human aspects of the procurement process, helping identify challenges and opportunities for improvement.

Additionally, collaborate with relevant stakeholders, such as department heads and key project managers, to decide the scope and create an audit plan. This inclusive approach ensures an understanding of organizational needs and contributes to developing an effective and targeted audit strategy. 

2. Assign Roles

Create a clear roadmap for team members. First, designate a lead auditor to oversee the entire process. This person ensures coordination and consistency. 

Then, distribute specific responsibilities among team members, such as document analysis, interviews, and data assessment. This division of labor maximizes efficiency, expertise, and accountability, contributing to a well-executed procurement audit.

Here are the top four best practices when assigning roles to an audit team:

  • Clearly define team tasks to prevent confusion and streamline workflow
  • Implement segregation of duties for an unbiased audit process
  • Rotate roles periodically to encourage collaboration and shared expertise
  • Foster collaboration among diverse team members for a comprehensive assessment

3. Identify Problem Areas 

Examine the procurement process to identify weaknesses and assess the overall efficiency of the procurement process. Here are the top four steps to keep in mind:

Assess Purchase Orders, Purchase Requests, and Invoices

Examine the purchase orders, requests, and invoices for accuracy, completeness, and adherence to established protocols. Ensure that the documentation is easily accessible. Any discrepancies or missing information indicates inefficiencies or errors in the procurement process. 

Potential Loopholes

  • Misplaced signatures, unclear specifications, or missing supporting details
  • Discrepancies in recorded quantities, prices, or delivery dates
  • Mismatched product codes, incorrect quantities, or inaccurate pricing

Healthy Practices:

  • Implement a standardized checklist for purchase orders and requests, ensuring all necessary information is included
  • Conduct regular training for procurement staff on accurate and comprehensive documentation practices
  • Employ procure-to-pay software for storing and retrieving documents, enhancing accessibility and reducing errors

Review Vendor Relations

Evaluate the strength and effectiveness of relationships with vendors. Examine vendor agreements and contracts to ensure they are clear, comprehensive, and aligned with organizational needs. Also, verify the effectiveness of vendor vetting processes.

Potential Loopholes

  • Contracts lacking specificity in payment schedules, service levels, or delivery terms
  • Failure to verify vendor credentials, financial stability, or past performances

Healthy Practices:

  • Conduct periodic vendor performance reviews to ensure ongoing reliability
  • Develop transparent and standardized contract templates specifying payment schedules, service levels, and delivery terms
  • Diversify vendor partnerships to diminish dependency and enhance resilience

Analyze Procurement Practices

Assess the entire procurement process to check if it adheres to industry standards and complies with organizational policies and legal requirements. This involves comprehensively examining sourcing, contracting, and purchasing practices to identify deviations or shortcomings.

Potential Loopholes

  • Failure to adhere to industry standards or legal requirements, showcasing a disregard for regulatory protocols
  • Continued reliance on outdated or non-competitive suppliers, hindering cost-effectiveness
  • Lack of systematic identification and mitigation of potential risks, exposing the organization to unforeseen challenges

Healthy Practices:

  • Provide training sessions on industry standards and legal requirements to ensure ongoing compliance
  • Organize quarterly workshops focusing on proactive risk identification and mitigation strategies, fostering an aggressive risk-aware culture

Examine Internal Controls

Evaluate the segregation of duties, authorization procedures, and overall internal controls. Make sure that checks and balances are in place, preventing fraud, errors, or unauthorized activities that compromise the integrity of the procurement process.

Potential Loopholes

  • Allocation of responsibilities for both approval and execution to a single individual increases the risk of errors or fraudulent activities 
  • Insufficient checks and balances in the approval process, allowing unauthorized transactions
  • Absence of mechanisms to detect irregularities, fostering an environment conducive to fraudulent activities

Healthy Practices:

  • Provide employee training on fraud prevention and promote a culture of ethical behavior
  • Implement proper approval workflows to enhance control mechanisms

4. Spot Out-Of-Process Spending

Investigate expenditures to ensure they align with approved procedures. Any out-of-process spending indicates a lack of adherence to procurement guidelines, necessitating corrective measures. 

Potential Loopholes

  • Missing or inaccurately recorded receipts, making it challenging to validate and track expenses
  • Insufficient supervision that enables unsanctioned spending to go undetected

Healthy Practices:

  • Implement strict spending approval processes with explicit guidelines
  • Conduct periodic spending reviews to identify and rectify discrepancies
  • Use spend management software for real-time monitoring to detect and address unauthorized spending promptly 

Here is a list of elements to assess for the internal procurement audit: 

Procurement Audit Checklist

Check the following items to get a comprehensive overview of your procurement process. 

  • Standard operating procedures (SOPs)
  • Clear audit trail for procurement transactions, documenting each step in the process
  • Delegation of authority matrix 
  • Roles and responsibilities as per the matrix
  • Training manuals to help users
  • Logical access rights to respective users
  • Segregation of duty (SOD) rules in the software
  • The purchase order dump — pick samples to check
  • If each purchase is supported by at least three vendors
  • Cost-benefit sample for vendors
  • Terms for purchase orders
  • Agreements of major purchases
  • Terms of sample agreements
  • Annual procurement budget aligned with annual operations planning 
  • Goods received notes (GRN) report
  • Open purchase requests and purchase orders
  • Exceptions to the process being approved
  • The aging of material available in the warehouse
  • If the same material was purchased by multiple vendors
  • Vendors approval process
  • Duplicate vendors in the system (identified via PAN)
  • Dummy vendors
  • Minimum order quantity (if created)
  • If the company maintains any risk register related to the procurement function
  • Sample vendor payouts (as per purchase order terms)
  • Internal control over financial reporting related to procurement
  • Measures to secure procurement data and ensure confidentiality
  • Ethical vendor selection practices, ensuring fairness, transparency, and avoiding conflicts of interest

5. Prepare Audit Report

Compile all audit findings related to internal procurement processes. Then, based on the following inspection, create an audit report:

  • Ensure procurement aligns with policies, standards, and legal requirements, identifying non-compliance and assessing organizational risk and reputation impact
  • Analyze the workflow, pinpointing bottlenecks and assessing control effectiveness for optimal procurement efficiency
  • Evaluate resource utilization in personnel, technology, and budget to optimize productivity without compromising quality
  • Assess risk identification, assessment, and mitigation in procurement, recommending improvements for enhanced resilience and threat minimization

Once the assessment is complete, document recommendations to address identified issues and improve procurement processes. Also, highlight aspects of the procurement process that align with best practices. 

Compile all findings, analyses, and suggestions into an audit report. Present the identified strengths and weaknesses, seeking input and additional context to enrich the audit findings. Finally, establish a monitoring mechanism to track the outcomes of the implemented changes. Regularly revisit and update procurement practices based on changing organizational needs, industry standards, and regulatory requirements.

Regular Audits for Efficient Internal Processes 

Routine procurement audits aren't just crisis management tools; they are proactive investments. By dedicating time and resources to periodic evaluations, you prevent issues before they arise. The long-term gains in efficient processes, improved vendor relations, and heightened compliance far outweigh the initial investment.

Automation adds a transformative layer to your procurement process, speeding up audits and providing real-time insights. We have covered in-depth how procurement automation can reinforce your internal processes without impacting your supply chain. Read how you can automate procurement without unnecessary complications. 

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Discover your savings with Pluto's Cost Saving Calculator and take control of your expenses. Unlock cost-efficiency now!

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Learn how Pluto is helping Keyper        to eliminate petty cash spending and optimize spend management

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At Pluto Card, our mission is to assist businesses of all scales make well-informed choices. To uphold our standards, we follow editorial guidelines to guarantee that our content consistently aligns with our high-quality benchmarks.

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Procurement
December 4, 2023

Mohammed Ridwan

Top 7 Accounts Payable Automation Software

An invoice has landed in your inbox. As soon as it arrived, a team member cleared the payment. Later, when another team member came across it, they made the payment again. This is a common scenario of duplicate payments that results in cash leakage. Invoices are not consolidated. There is no proper approval workflow, and stakeholders lack visibility. 

Overall, managing accounts payable (AP) becomes a nightmare. 

An automation tool solves these bottlenecks and provides a centralized platform for invoice management and accounts payable. An accounts payable automation software automates invoice capture and retrieval to consolidate all the information on a unified platform. You get real-time visibility and control over your payables. 

As a result, you establish better vendor relationships and supply chain management without impacting cash flows.

This post will cover 7 AP automation software to help you choose the right automation partner.  

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Top 7 accounts payable automation software 

Here are the top 7 AP automation software. You can pick one of these to automate your accounts payable based on your company size and needs.

1. Pluto

account payable automation software by pluto

Pluto is an accounts payable software that transforms your AP processes by simplifying bill processing. From enabling GRN matching to setting fully customizable multi-layer approval workflows, it is the best AP automation software to manage your vendor payments. 

Key Features:

  • Facilitates three-way GRN matching with purchase orders and item-based matching
  • Offers a flexible approval engine capable of managing intricate hierarchies without requiring technical expertise
  • Enables multi-layer invoice approvals with policies to align with your company's structure
  • Ability to upload invoices easily via WhatsApp images and emails to speed up the receipt capture process
  • Facilitates optical character recognition (OCR) technology to retrieve invoice information, including tax and general ledger (GL) codes
  • Offers a centralized dashboard to gather bills in one place and track the status to avoid double payments
  • Consolidates approved invoices in a single window to highlight pending bills and avoid delays
  • Raises alerts for upcoming payments, enables scheduling payments in advance and automates invoices 
  • Allows you to seamlessly carry out bulk local and international wire transfers for easy payment clearing through their treasury partners.
  • Enables you to split payments for different tax and GL codes, departments, etc. 
  • Provides vendor-specific corporate cards to control budgets and detect irrelevant expenses
  • Supports ERP integration to synchronize your vendors, purchase orders, and bills
  • Integrates with accounting software such as Oracle, NetSuite, Zoho, Quickbooks, Wafeq, Xero, etc.
  • Provides a complete audit trail of the process to ensure visibility at each step
  • Shows real-time analytics to facilitate deep insights for supporting budget control

Pricing: 

Free to get started 

Pros:

  • Free to get started!
  • Enables branch and subsidiary-level spend tracking (not offered by other platforms)
  • Offers up to 2% cashback on all non-AED transactions 
  • Independent PCI DSS Level 1 certification for advanced security
  • SSO/SAML Capabilities for Enterprises
  • Better Forex rates than most local banks 

Cons:

  • Integrates with all other major ERPs except Tally
  • Slightly longer on-boarding due to corporate card offering

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2. Tipalti

AP automation software by tipalti

Tipalti is an automation tool that supports end-to-end AP processes. It streamlines accounts payables and facilitates global payments in local currencies for various recipients, from suppliers to freelancers. The cloud-based platform helps finance teams manage payments without losing visibility and control. 

Key Features:

  • Supports supplier onboarding and vetting to ensure supplier reliability and trustworthiness
  • Integrates with ERP and accounting systems to help with reconciliation reporting
  • Uses OCR to scan, capture, match, and process invoice data to reduce manual errors
  • Provides built-in approval workflows and payment scheduling 
  • Offers invoice processing, including two-way and three-way purchase order matching and approval to avoid overpayments
  • Assists AP processes for subsidiaries and entities

Pricing: 

Starts at $129 per month per user for the platform fee and charges for additional features separately

Pros:

  • Can manage supplier bank account details in a secure environment

Cons:

  • Cannot use it for prepayment invoices on inventory purchases with the ERP system
  • High foreign currency exchange fees
  • Tax forms can be difficult to fill out and very difficult if you do not speak English

3. Airbase

AP automation platform by Airbase

Airbase manages global AP processes. It focuses on ensuring compliance and syncing with your accounting tool to streamline payment. It is an automation solution for small to midsize businesses (SMBs) and large enterprises with 100-5,000 employees.

Key Features: 

  • Offers OCR to populate details, including GL category, date, amount, and purpose
  • Supports onboarding with a self-service vendor portal and custom questionnaires
  • Has a centralized dashboard with all key information about the invoice to avoid friction 
  • Accepts invoices from email or vendor portal across all subsidiaries
  • Offers automated approval workflows based on multiple parameters, such as vendor, amount, GL category, etc.
  • Enables three-way invoice matching to ensure compliance and reduce wasted spend
  • Real-time audit trail with receipts, notes, and documentation for transparency

Pricing: 

Request a custom quote

Pros:

  • Intuitive and easy to use; no training or previous knowledge required

Cons:

  • The mobile app is slow and takes time to load pages 
  • SSO-based login is not smooth
  • Not suitable for complex branch-level approvals and expenses

4. Ramp

Ramp's AP automation solution

Ramp is an accounts payable solution for managing payments and business expenses. It automates bill entries, approvals, and payments while offering complete visibility and control. By tracking each AP step from data recording to approvals, it simplifies payment processing and takes the burden off teams. 

Key Features:

  • Uses artificial intelligence (AI) to extract key details from invoices to offer accuracy and eliminate data-entry errors
  • Identifies duplicate invoices and helps with two-way matching to purchase orders
  • Offers custom approval workflows to minimize errors and ensure timely payments 
  • Provides a unified dashboard with visibility into the status of invoices
  • Consolidates multiple payment options, such as check, card, same-day ACH, or international wire
  • Integrates with accounting solutions, such as QuickBooks, Xero, Oracle NetSuite, Sage, etc. for auto-sync bill pay transactions
  • Supports international payment processing in multiple currencies 
  • Tracks vendor data and transactions for easy reporting and data-driven decisions

Pricing: 

Three pricing packages—free or basic features, $15 per user per month for Ramp Plus, and custom quote for enterprises with features like enterprise ERP integration, custom implementation, and local card issuance

Pros:

  • Works with multiple subsidiaries
  • Offers cash back on credit card purchases made using VISA cards

Cons:

  • Can’t unmatch an incorrectly matched invoice (invoice to credit card)
  • Approval routing can only be set on the vendor level, not the department level
  • Limitations in syncing repayments

5. Bill

Accounts payable automation tool by Bill

Bill is an accounts payable solution for SMBs to control payables, receivables, expenses, and all corporate expenses. It allows businesses to streamline scattered AP processes into a single platform and gain more control over their finances. 

Key Features:

  • Enables custom approval workflows for minimal hassle
  • Automates purchase order workflows with the option for automated two-way and three-way matching
  • Automates receipt matching, categorization, and expense reporting, decreasing administrative tasks
  • Syncs with all major accounting systems like QuickBooks, Sage, Intacct, and NetSuite
  • OCR auto-populates invoices for data entry
  • Provides bulk payments of approved invoices with payment choices, such as ACH, credit cards, checks, and international wire transfers
  • Offers audit trail of any changes or actions related to the invoice on a single page

Pricing: 

Provides a free trial and essentials pack starting at $45 for six standard user roles. Its team and corporate pack are for $55 and $79, respectively. Enterprises need to request a custom quote.

Pros:

  • One-click swift payments
  • Minimum training required
  • Easy-to-use mobile app

Cons:

  • Customer support is difficult to initiate, slow, and unresponsive
  • Frequent changes in the interface create confusion for users

6. Procurify

Procurify's AP automation software

Procurify streamlines AP reconciliation, offering a straightforward solution for financial operations. From catalog management to custom user controls, it helps to track the procurement process in real time. Its no-code configuration allows for a prompt deployment in under six weeks, making it a suitable choice for mid-market to enterprise organizations.

Key Features:

  • Creates, tracks, and maintains an audit trail of all procurement transactions for transparency and compliance
  • Ensures that requested items are approved against budgets before procurement
  • Integrates with trusted vendors through punchout catalogs to streamline the ordering process
  • Syncs bills and completes bill payments directly with platforms like QuickBooks Online, NetSuite, and other major accounting systems
  • Supports OCR  technology to extract data from invoices

Pricing: 

Starts at $2000/month with a custom pricing tier

Pros:

  • Ability to upload different invoices in the same PO and group invoices

Cons:

  • Doesn’t offer payment services, so you need to carry out payments on a different platform
  • Physical inventory has to be tracked outside Procurify

7. ZipHq

Accounts payable automation by ZipHQ

Ziphq is an end-to-end procure to pay software designed to streamline the entire procurement process, from purchase order to payment. It caters to businesses of all sizes — startups, mid-size companies, and enterprises with no-code configuration and deployment in under six weeks.

Key Features:

  • Offers vendor cards to automate recurring and one-time payments
  • Centralizes purchasing workflows, providing real-time visibility into the AP process
  • Facilitates automatic purchase order matching, ensuring invoice accuracy and timely payments
  • Provides automated, no-code workflows, referencing all stakeholders in the approval chain
  • Allows employees to comment on invoices and tag stakeholders, ensuring everyone has the context and visibility needed
  • Automates renewal planning with workflows initiated well ahead of deadlines, enabling stakeholders to make informed decisions
  • Supports vendor payments in 140+ countries and 40+ currencies
  • Integrates with ERP, ensuring quick and easy reconciliation, even for complex, multi-subsidiary operations

Pricing: 

Request a demo quote

Pros:

  • Provides various customization options to configure internal processes

Cons:

  • Localized to the USA market
  • Takes over five days to settle vendor payments 
  • Can’t bulk upload documents

How to choose the right accounts payable automation software?

User-friendliness

Select software that is adaptable and user-friendly, with intuitive trigger-based workflows and a clean interface, ensuring ease of use without excessive reliance on support for basic tasks.

Versatile payment capabilities

Choose a solution that supports a broad spectrum of payment methods, including the ability to issue vendor-specific cards for secure and speedy payments, a feature not commonly found in many platforms.

Accurate Invoice Processing

Opt for software with OCR technology to enhance invoice processing speed and accuracy, capable of handling invoices from various sources and integrating them into a centralized database for reduced manual entry.

Efficient Approval Workflows

The software should include a straightforward, no-code workflow builder that can handle complex hierarchies, essential for large organizations with intricate approval processes.

Seamless System Integration

Ensure the software integrates well with existing accounting systems to automate data entry and maintain synchronized records, which is crucial for effective financial management.

Advanced Reporting Features

Reporting functionality that offers insights into spending patterns and department-specific expenditures is vital. The software should provide a robust reporting dashboard with options for deeper analytics.

Choosing the right accounts payable automation software 

Implementing accounts payable software will support your procurement process only when you carefully pick an option that provides flexibility, visibility, and security without losing on functionality. 

Imagine software that makes it easy to clear payments but doesn’t settle payments for days on the vendor’s end. Contrarily, consider an option your legal or IT team is skeptical of implementing. 

That is why, at Pluto, we focus on simplifying processes and cutting all the chaos without risking security, flexibility, or functionality. We simplify accounts payable by syncing with your payment gateways for faster payments at better forex rates than banks. You get a PCI DSS Level 1 certified solution that provides you with bank-grade security. 

So, book a demo and learn more about how you can optimize your entire procurement process.

5
All
Updates
December 11, 2023

Vlad Falin

5 Strategies For Cost Reduction in Procurement To Improve Bottom Line

It’s challenging to always be on your toes, looking for ways to cut costs. Be it negotiation or automating manual, time-consuming processes, your main focus is always to optimize expenses and improve the bottom line. This comprises 36% of CPOs whose top priority is delivering bottom-line savings. 

Hence, in this post, we will discuss the top 5 procurement cost reduction strategies. We’ll also discuss the process of getting started and ways to improve the procure-to-pay process to ensure procurement cost savings

See a Demo

5 Cost-Saving Strategies in Procurement

Here are the top 5 cost reduction techniques in procurement that you can implement in the short and long run:

1. Reduction in Maverick Spending

Reduction in Maverick Spending

Maverick spending refers to expenses beyond the established policy and procurement process. It involves unauthorized purchasing that is either not approved or doesn't adhere to the pre-approved vendors or negotiated contracts. 

Such expenses impact financial and operational efficiency, leading to budget overruns and supplier relationship strain. For instance, an employee purchases office supplies from a non-approved vendor. It can lead to higher costs due to a lack of negotiated discounts and impact the organization's ability to leverage consolidated spending for better terms and conditions.

To reduce maverick spending, you must actively communicate procurement policies to avoid such expenses. You must monitor all the transactions and address any such instances. This requires greater visibility into the spending at each stage and an analysis of how company resources are being used. You will also need to set spending controls based on the company policies to avoid constant monitoring. 

Purchase request flow

As a result, you gain better control over the procurement process, negotiate better contracts with preferred suppliers, and leverage volume discounts without disrupting the supply chain. This will help you maintain compliance with established procurement policies and save costs by avoiding unauthorized expenses. 

2. Contract Management

Contract management involves reassessing the existing contracts and negotiating supplier agreements. This includes negotiation, execution, and ongoing monitoring to ensure cost optimization.

Contract Management

To ensure strong contract management practices, regularly revisit contract terms, assess performance metrics, and proactively identify areas for improvement. Prioritize negotiation preparation by investing in training for procurement professionals, ensuring they possess the skills to secure favorable terms and adapt agreements to evolving business needs. 

Contract management aids in maximizing the value of agreements, minimizing risk, and ensuring that suppliers deliver as per the agreed terms. It also promotes better relationship management and identifies opportunities for cost optimization.

3. Request Specification

Request Specification

Request specification involves creating clear and detailed specifications for the goods or services that the organization intends to procure. This involves detailing purchase requests and understanding the needs of the teams to deliver what they need and not spend money on unnecessary features and misfit products. This helps ensure suppliers understand the exact requirements, leading to more accurate quotes and better value for money.

To ensure detailed request specifications, involve all the stakeholders in the approval process and get buy-in from each of them. Follow a standardized approval workflow to raise purchase requests. This ensures consistency and gets the maximum information possible. However, it is important to implement customized workflows to suit your business hierarchies.

hierarchies

This reduces the risk of feature overlap and better consolidates the purchases for negotiating more favorable deals. Moreover, the specificity of needs lowers the chances of cost overruns or disputes during the procurement process.

4. Spending Consolidation

Consolidating spending means automating procurement processes to achieve economies of scale. This includes consolidating purchases, standardizing suppliers, and leveraging bulk buying power. Doing so lets you negotiate better terms with suppliers, reduce administrative overhead, and achieve cost savings through volume discounts.

For instance, if you consolidate spending on packaging materials by sourcing from a single supplier, you negotiate bulk discounts, streamline procurement processes, and benefit from standardized materials. This approach reduces costs through economies of scale, simplifies logistics, and enhances overall operational efficiency.

Spending Consolidation

To consolidate spending, conduct a thorough spend analysis, identify opportunities for consolidation, and negotiate with suppliers for better terms. Additionally, implement procurement software to streamline procurement processes. This will give you insights into your spending behaviors and help you identify optimization opportunities. Also, create a cross-functional procurement team to promote collaboration and standardization across the organization. Moreover, ensure proper cross-functional workflows to get stakeholders involved at each stage. 

5. Vendor Diversity

Vendor Diversity

Vendor diversity involves engaging with various suppliers to reduce dependency on a single source. This strategy ensures increased competition, better negotiation opportunities, and improved risk management.

For instance, having vendor diversity enables you to source materials from multiple suppliers rather than relying solely on one. This creates competition among suppliers, encouraging competitive pricing and service levels to mitigate risks associated with potential disruptions from a single supplier. Hence, in the event of supply chain challenges or fluctuations, you get the flexibility to maintain production and minimize the impact on operations.

To ensure vendor diversity, adopt a global sourcing strategy and conduct thorough market research to identify potential suppliers across the globe with clear criteria for supplier selection. Additionally, actively seek partnerships with businesses that bring unique strengths to your supply chain. Moreover, it is important to also regularly reassess and diversify your supplier portfolio to ensure adaptability to changing market dynamics. Fostering open communication to build strong, collaborative relationships with various suppliers is a must

As a result, you get better pricing, quality, and innovation. It also provides a safety net if one supplier faces disruptions or fails to meet expectations.

Three-Step Process for Cost Reduction in Procurement

Before implementing these strategies, go through this strategic process each time you have to hunt down expenses for cost savings:

1. Analyze Spend

Analyze Spend

Start by conducting a comprehensive spending analysis to understand where the money goes. Use financial records, invoices, and procurement data to categorize and analyze spending patterns. In such cases, having procure-to-pay software helps a lot in getting insights and real-time visibility.

This step provides a clear overview of the organization's spending habits, allowing identification of areas for potential cost savings. It serves as a foundation for informed decision-making in subsequent cost-reduction strategies.

2. Identify the Biggest Expense

Compare across departments or suppliers to identify the largest expenses or categories and spot any unusual expenses. This step allows for targeted efforts in cost reduction.

Discuss these insights with relevant stakeholders to understand why these costs exist and their impact. Also, align the understanding of ‘savings’ with them to avoid unnecessary delays and rejections. It is advisable to align it with something measurable to make it easier to sell the business case and implement the necessary changes. 

For instance, the information technology (IT) department proposes investing in new software that, in the long run, promises increased efficiency and reduced maintenance costs. However, the finance team, focused on immediate budget constraints, may interpret ‘savings’ as strictly short-term cost reductions rather than considering long-term benefits. 

To align understanding, the IT team can quantify long-term savings through reduced downtime, improved productivity, and potential scalability benefits. This ensures both departments share a common definition of ‘savings’ and facilitates a collaborative decision-making process.

Additionally, you can target the smaller spend or tail-end spend as well. It is easier to cut people from making one-off purchases or buying small items on Amazon that another department may have. 

3. Conduct Market Research and Maintenance

Conduct market research to understand current pricing, trends, and available alternatives for the identified major expenses. Based on your research, you can optimize these expenses without impacting the supply chain. This includes incentives such as:

  • Use spending data analysis to negotiate improved terms with suppliers. Seek discounts or bundled services to reduce costs without disrupting the supply chain.
  • Research alternative suppliers or vendors for the identified major expenses. Assess their offerings, pricing, and reliability to diversify options and secure more cost-effective alternatives.
  • Invest in automation to optimize procurement processes, reducing administrative overhead without disrupting the supply chain.
  • Analyze inventory levels and adjust ordering practices based on demand forecasts to prevent overstocking or stockouts.
  • Regularly monitor the expenses and supplier performance and reassess strategies to adjust optimization efforts based on changing market conditions and organizational needs.

Keep updating this information to stay informed about changes in the market. This ensures that you are well-informed about competitive pricing and industry trends. Additionally, you get the necessary data to negotiate better terms with suppliers, explore cost-effective alternatives, and adapt to market fluctuations, contributing to more strategic and informed decision-making.

How to Ensure Maximum Procurement Cost Reduction

Most companies have procurement processes running on autopilot with standard operating procedures. However, this leads to inconsistent efforts of procurement teams in reducing costs. They have to dedicate hours to analysis and optimization, which can be changed with intentional efforts to ongoing cost savings practices in procurement. 

However, with traditional manual processes, getting real-time visibility and comprehensive insights is impossible. To streamline the process and consolidate the expenses, you must adopt tools that support your cost savings initiative. This means centralizing all the information to build a unified platform for complete visibility and control. 

Pluto simplifies this for you. Not only do you get insights and controls, but you can also create cross-functional workflows to facilitate the collaborative procurement process. You can integrate your entire accounting and accounts payable system onto a single platform and streamline the entire process. As a result, you get real-time visibility and can optimize expenses in time.  

Book a demo to know more about how Pluto fits into your business and helps you streamline your procurement process for collaborative cost-saving efforts.

5
All
Spend Management
November 15, 2022

Vlad Falin

The Complete Travel and Expense (T&E) Management Guide

Travel and expense management is crucial for ensuring that business-related travel expenses are kept in check. However the accurate collection and reporting of all travel-related expenses pose a significant challenge.

As the person in charge of managing your organization's finances, you should be obsessed with making all expense management as efficient as possible in order to save money.

But how can you simplify the travel and expense management process when there are so many moving parts and people involved? By using the right tools for the job.

In this guide, you’ll learn the importance of having a good travel and expense management policy, how to make your T&E management more efficient, and what to look for in travel and expense management software.

What is travel and expense management?

Travel and Expense (T&E) management is the process companies follow to monitor and control business travel expenses. T&E management is vital as it affects the company's financial well-being directly by ensuring all travel-related expenses are tracked for tax deduction purposes.

T&E management involves tracking and controlling expenditures such as flights, accommodation, meals, and client entertainment. Effective T&E management ensures that these costs are necessary, reasonable, and aligned with the organization's policies and goals. This management is particularly vital as travel and entertainment expenses can quickly accumulate and become significant financial commitments for businesses.

Why is travel and expense management important?

As a finance professional, you know that cost management and expense reduction are crucial aspects of financial management work. One of the ways you can do this is by tracking all deductible expenses for tax reduction purposes.

And when it comes to the hierarchy of expenses you need to keep track of, those related to corporate travel and entertainment are of particular importance.

According to Mastercard, corporate travel and entertainment expenses have become the second-highest expense category.

But not only does T&E account for a large portion of the business expenses that companies have to deal with, but it’s also been identified as the second most difficult operating cost to control.

That’s why it’s so important that your organization develops and maintains effective T&E management policies, and uses the tools available to simplify T&E management.

The challenges of travel and expense management

Managing travel and expense (T&E) can be a complex task, often fraught with a range of challenges. These challenges can significantly hinder the efficiency and effectiveness of an organization's T&E process. Key challenges include:

1. Limited Fund Access: Employees often face constraints in accessing funds for travel-related expenses, which can lead to delays and complications.

2. Security Risks: The management of expenses, especially in a digital format, raises concerns regarding data security and the risk of financial fraud.

3. Outdated Policies: An organization's T&E policies may become obsolete or fail to align with current business needs and practices, leading to inefficiencies and policy breaches.

4. Lost Reports: Misplaced or lost expense reports can disrupt the reimbursement process, leading to employee dissatisfaction and administrative headaches.

5. Inefficient Bookkeeping: Manual and outdated bookkeeping methods can result in errors and inefficiencies, making it difficult to track and manage expenses accurately.

6. Lack of Spending Visibility: Without clear visibility into T&E spending, organizations struggle to control costs and make informed budgetary decisions.

7. Slow Reimbursement Process: Delays in processing reimbursements can demotivate employees and hinder efficient financial management.

How to make travel and expense management process efficient

1. Review your travel expenses and reimbursements

One of the first things you should do is take a look at your current travel expenses to see if there are any changes to be made.

Business travelers will always need to take trips, but perhaps there are some interactions that could be handled via videoconferencing.

You can also look for ways to minimize the expenses that need to be reimbursed. For instance, by using Pluto corporate cards, you could help eliminate, or at least reduce, the need to reimburse food expenses while giving you better control over them.

2. Examine your travel policy and keep it simple

If you are having trouble with your T&E management, you should take a look at your current travel policies (and if you don’t have one already, you should make that your top priority).

Your T&E policies need to strike a balance between flexibility and strictness. Too flexible and you create waste; too rigid and you limit the ability for people to do their jobs.

A good T&E policy should include the following:

  • How travel will be booked
  • The process to follow for reimbursement (including what type of supporting documentation is necessary, due dates, and other stipulations).
  • Any budget or spending limits, including the specific transportation methods or hotels that can be used.
  • Meal allowances.

And you want to keep your policy simple and easy to read. Minimize the jargon, use short paragraphs, and a simple format with bullet points, tables, and clear headings.

You should continuously review your expense policy, particularly as your business expands, to ensure that it’s aligned with any changes in your organization. 

3. Go paperless

Your team should be able to access your expense policy from anywhere and at any time. But more than that, you should aim to digitize the expense report process as much as possible.

For instance, implement the ability to submit digital expense reports and capture receipts digitally. Not only will this allow you to get a clearer view of your operations at all times, but it will help simplify your bookkeeping and easily manage receipts.

Pluto has this function! 

Digitize travel and expense management

4. Use travel expense management software

Through effective use of travel and expense management systems, you can consolidate the different scaffolds in your expense process, automate them, and eliminate time-consuming approvals while minimizing, or outright eliminating, human error.

Using Pluto allows you to cut a lot of the fat out of the reimbursement process. Automate reports, data gathering, and approvals for expenses that meet your policies, leaving only those that don’t meet your policies for manual approval. 

Furthermore, it can help you detect fraud by auditing your reports for duplicate expenses and any other anomalies.

And through software integration, you can use these different tools to create a unified T&E management process. 

5.  Top solutions for travel and expense management

There are many tools you can use to make your T&E management more efficient, for instance:

  • Pluto Card allows you to issue unlimited virtual cards, create travel specific card limits  monitor spending in real-time and most importantly, it allows your employees to reimburse quickly!
  • A travel expense tracker can provide you with automated expense reporting and expense tracking.
  • You can use a travel management platform that allows your employees to book flights, trains, and hotels and even rent cars from one place.
  • Pluto mobile app makes the expense reporting process much simpler for your employees.
  • You could take data from Pluto and travel management system directly into your accounting platform to further automate and simplify the T&E management process.

Expense management software for T&E management

One of the best ways to simplify your travel and expense management is by making use of the right T&E management software. However, with the increasing amount of options available, knowing which one fits your company best can be difficult.

Since no two businesses are exactly the same, there won’t be a one-size-fits-all solution. Having said that, you’ll have an easier time choosing between the different options by focusing on the specific features that you need, or at least should consider, in a T&E management platform.

Key features to look for in a travel and expense management software

1. Virtual cards

Pluto gives you the ability to create virtual cards for online purchases. These cards can be generated as single-use or recurring, giving you complete control in terms of how you set up your spending limits.

Virtual cards offer you similar benefits to corporate cards, in the sense that you get full visibility of your expenses and your employees don’t have to pay upfront, but they have the added benefit of being more customizable.

2. Flexible spending limits

Our expense management software can also give you a lot of control and flexibility over the spending limits that you set. Pluto allows you to set specific spending-limits for vendor and change them in real-time online. 

This allows you to track expenses for specific countries or cities, while removing the need to manually configure spending limits each time someone makes a trip request.

3. Expense reports and analytics

If you want to make your expense management more efficient, you’ll need accurate data and insights into the spending habits of your employees.

Pluto gives you real-time reporting and analytics, to give your finance teams an easier time combing through all the expense data. For instance, a system with robust reporting capabilities should:

  • Categorize expenses and organize reports by expense type
  • Reconcile your reports
  • Give you spending insights across all your departments
  • Keep track of violations of your expense policies
  • Provide you with real time spend visibility

By getting a clear picture of your expenses, you’ll have an easier time ensuring policy compliance, preventing fraud, and reducing travel costs.

4. No FX fees and multi-currency functionality

If your employees travel internationally frequently, you’ll want a product that comes with a card that doesn’t have additional fees or surcharges for international purchases.

At Pluto we have 0 FX fees. Furthermore, you’ll have an easier time managing these expenses due to multi-currency functionality automatically converting all transaction information to your country’s currency.

5. Mobile functionality

If you are trying to simplify your expense reporting process for travel expenses, then you need a way to work on those expenses on the go. Pluto’s mobile app would allow your employees to report their expenses right away from any location, while also giving them the ability to submit receipts digitally.

6. Integrated card management

If you opt for a software provider that also offers corporate credit card services, you’ll be able to automatically reconcile expense report entries with your card statements, detect any expense bottlenecks, and generally reduce the chances of fraud or misuse. 

Pluto card management software will also give you more control over your corporate spending. Plus, you’ll be able to set and control your spending limits with much more ease.

7. Compatibility with other tools

When it comes to the use of technology in expense management, the more, the merrier.

Pluto can be integrated with your accounting software so that it can automatically populate expense reports and simplify your reimbursement through the use of your organization's accounting data.

Furthermore, by integrating your TEM system with your travel management system you can instantly take the travel booking information and add it to your expense reports.

8. Automated workflows, expense categorization, and tax calculation

The entire point of using travel expense management software is to automate as many processes as possible.

This includes the ability to customize your travel policies and approval workflows, categorize expenses for more straightforward tax calculation, and determine whether they are tax deductible or not.

Furthermore, by categorizing your expenses, you’ll have an easier time complying with the tax regulations of your country.

9. Scalability

One feature that is sometimes overlooked in software platforms is the ability to scale your operations as your company grows. You don’t want to choose a system now only to realize it no longer meets your needs further down the line.

In this regard, Pluto is a great pick as we have the backend to support any business sidez from small teams to enterprise level accounts. 

Key takeaways

Effective expense management is all about visibility, flexibility, control, and automation. The most common pain points from T&E management come from outdated policies and manual inputs, which you should seek to update and simplify via means of a robust expense management platform.

When it comes to making your travel and expense management more efficient, the key things to remember are:

  • Review and update your policy continuously to ensure it meets the needs of your business and employees.
  • Examine your current expenses to look for opportunities to reduce reimbursements and consolidate expenses.
  • Use Pluto to automate approval workflows and simplify the expense reporting process.
  • Pluto also offers strong reporting capabilities, gives you a lot of flexibility for spending limits, and can be integrated with other tools for maximum effectiveness.