Maverick spending — the purchase of goods and services outside of agreed contracts and/or preferred suppliers — is the bane of every accounts payable (AP) professional.
In every business, some amount of maverick spending occurs on a routine basis, but it’s more of a problem for some than others.
These unauthorised, “maverick” purchases made outside of defined procurement processes can be costly and damaging for businesses, especially for those that need to control or reduce business costs/spending.
So why does it happen? In this blog, we’re going to outline why maverick spend occurs, what it does to a business and what you can do to control it.
No plan, no process
Maverick spending typically occurs in businesses where purchasing is decentralised and no formal purchase order process exists. Instead, the buying is done by everyone.
Now for the person doing the purchasing, this process is simple and straightforward: they find what they need, buy it and wait for the purchase order to be approved — but from the perspective of the accounts payable (AP) department, it adds an incredible amount of work.
More work, less productivity
Put it this way — even if everyone has the ability to buy what they want and no one follows a set process, the AP team still has to analyse, review and forward every individual purchase order manually to ensure the details are correct. Furthermore, even if this part of the process is automated — i.e. the purchase orders compiled and forwarded to the appropriate member of staff, if any details are incorrect or missing, that could cause catastrophic problems.
As a result, the AP department have no control over spending and an ever-increasing workload — something they need to avoid if they are to be productive.
No visibility of spending
As staff buy what they need using their own methods, the second issue is that there’s no visibility of spend. This makes spend analysis and forecasting impossible as data is incomplete. The only time AP know about what’s being spent is when the invoice finally arrives!
Having end-to-end visibility of spend (including who bought what, where, when, why and the category) will enable AP teams to undertake detailed spend analysis, forecasting and optimisation exercises. All of which are vital in the current lockdown climate.
Who holds the licence to buy?
The last issue is that in these businesses where employees manage the purchase order process themselves, the procurement roles are unclear.
The licence to buy should sit with the approver. Staff can find and source items via preferred suppliers, but if they are the ones pulling the trigger on purchases, do they know what the best value is or if what they are doing is right for the business?
What happens as a result of maverick spend?
Maverick spending leads to several problems, the most notable being the following:
Reduced savings — as staff continue to buy at will (neglecting preferred suppliers, best value and increasing the workload of the AP team), any potential cost savings will go unrealised and the time required to account for the extra work will reduce the profitability of the business (as more time is spent on tasks that don’t add value).
- Operational risks – if employees don’t buy from an authorised list of suppliers (preferred suppliers), they could unknowingly introduce risks — it might be that the products from that supplier are sub-par or too costly. Furthermore, unapproved suppliers need to be vetted and then added to the ERP system by the AP team. More work yet again.
How do you identify and avoid maverick spend?
With the above considered, you’ll most likely want to identify and avoid maverick spend, but where do you start?
Carry out a thorough spend analysis
To identify any unexpected/unauthorised spending, you will need to carry out a thorough spend analysis. A spend analysis will not only give you a breakdown of what’s being bought, but also by whom, when, where and why, and which vendors are contributing to it.
More importantly, with the data acquired from the analysis, procurement specialists can use the information to identify savings opportunities and robust spending strategies.
When was the last time you conducted a spend analysis? If it’s been a while, now is certainly the time to do one!
(P.S. If you implement accounts payable and purchase order automation, you can capture the spend data from all of your received invoices to carry out comprehensive spend analyses and identify long-term savings opportunities)
Think about why it’s happening
As mentioned above, maverick spend often occurs in businesses where purchase processes don’t exist or where purchasing is decentralised.
Chances are that your staff don’t understand the purchase order process and subsequently take it into their own hands, only raising a purchase order for approval after the fact. The best thing to do is to educate them on the process if you have one or create one if you don’t.
Make the process simple and easy to understand. If it’s long and/or complex, staff will shun it for more efficient methods — i.e. handling it themselves.
Also, are you getting the best value on the items that your staff buy? It could be that they have found suppliers who can deliver products/services cheaper than those you have agreed contracts with or existing relationships, if so, have you evaluated these new suppliers?
Make spend management everyone’s responsibility
Rather than allowing everyone to buy, make it so that everyone is responsible for how, when, where and why money is spent. Purchase order approval should stay with the AP function/relevant approver, but staff should have visibility of all committed and/or future spending.
By sharing the responsibility, it becomes easier to report on purchasing and also ensures that managers keep a record of what’s being spent by their team.
Change attitudes, implement automation
If you want to eradicate maverick spend, you need to first highlight why a standard process is important and implement a solution that empowers staff, rather than hinder them.
Often, this means implementing a purchase order system/AP automation solution to automate the more time-consuming elements of the purchase order process (filling in the requisition form and submitting it for approval), so that it’s easy for staff to buy what they need. It will also make it easier for the AP team to capture and process invoices.
Buy-in for this is crucial and always starts with letting employees know why the new process will be easier, faster and more convenient for everyone involved. Work with key stakeholders to smooth the transition – CFO, department VPs, those doing the purchasing, AP — and establish a list of preferred suppliers for staff to use.
Finally, automate certain approvals so that they don’t need to be reviewed by the AP team but just signed off by the right people!
If you think you’re too busy for change and the prospect of AP automation doesn’t appeal to you — this blog will prove otherwise.
Develop a clear process
A clear purchase order process or workflow – employees can see how to raise a purchase order (in line with best practice) and who that order needs to go to for vetting/approval and who does the buying. Make them mandatory
Highlighting preferred vendors/using a solution that locks purchasing to preferred vendors. Let employees know the risks of not following the process (i.e. higher costs from unauthorised suppliers and other liabilities).
The best option? Enable staff to buy online, automate the purchase order process and install digital invoice capture
The best solution is purchase order automation, combined with online buying and digital invoice capture (rather than OCR) – specifically the kind that Compleat offers.
With Compleat, purchase orders can be made by anyone, anywhere, and then routed to the appropriate people for approval. The subsequent invoice is then digitally captured and fed directly into the ERP system (including all header and line-level information) for complete visibility of the purchase and potential cost savings exercises.
Everything is zero-touch, allowing your AP team to focus on better/more important work and improves productivity by up to 90% on average.
The result? More time, increased productivity, more control over spending and greater savings achieved. Interested? Just click the button below to find out more about our service: CompleatProcure.