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Expense Management & Vendor Management: How do you manage them both?

Oct 9, 2018 8:18:48 AM

Expense management and vendor management for companies might seem like they are similar processes, but are very different due to the difference in the number of people involved, the business impact of each process, and the ability to control costs. Some finance professionals want one solution to manage both, but a specialised solution would be the best bet to ensure great usability and to achieve the business outcomes each process is expected to deliver. Read on for the full story: 

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There have been many conversations amongst finance people about how they want one place to manage their Accounts Payable - mainly their vendor management and expense management. This sounded like a good idea at first, but a different story emerged upon deeper inspection.

At the first glance, they seemed to look pretty similar. They both fall under Accounts Payable and are handled by the Finance/Accounts team. They are both expenses for the company, handled by the finance team, and the process for paying employees and vendors even had a similar approach. For example, costs for vendors and expenses by employees both involve approval workflows to be processed.

Given all these similarities, it’s understandable that companies want one solution that addresses both their expense management and their vendor management issues. The assumption is that it would be convenient for finance folk to be able to do everything they need to do from one place.

But when we take a closer look, its evident that the initial similarities were only on the surface, and there were actually some considerable differences.

Number of employees involved

One difference is the number of people that are involved in both the process. Expense management involves all employees who incur expenses for the company. This means that the people who have a need for an expense management solution are a larger group, that also includes the leadership team. That’s a much larger user group than the few vendors the team will have to manage.

Consider Acme Corp with 2000 employees. They’ll have a maximum of ~50 vendors to manage. Each vendor raising an invoice per month amounts to a total of 50 invoices. Acme Corp has 200 people (at least) raising monthly expenses with an average of 10 receipts each - that amounts to 2000 receipts.

Even with this very conservative estimate, it’s abundantly clear that there is a massive difference in the number of receipts that employees submit and the number of invoices that come in vendors, which means that they’ll have to spend so much more time to check for policy violations compared to managing vendor. This shows that they are very different processes.  

More data to deal with

Expense management also has more line items than vendor management does such as mileage, long-distance and/or frequent travel, food, hotel booking and some more. In contrast, vendor management has a very limited number of line items to contend with. The number of fields to deal with and the necessary richness of data is much different for vendor and expense management.

Ability to control costs

When expense policies are enforced properly, there’s a much larger scope to control costs for the company. Expense management is one place where companies can save a considerable amount of money. There’s scope for saving money with efficient vendor management as well, but definitely not to the extent that expense management allows. That’s mainly because vendor contracts are pre-defined with little room for negotiation, whereas expense management has been consistently ranked #2 in a company’s ability to save costs.

What needs to be automated?

Vendor management affects the finance and purchasing teams majorly. In addition to those teams, expense management also touches every single employee of the organization, across different hierarchies and geographies. There is simply too much data to be managed, and so many people who are affected so there’s a big need to automate filling different categories of data to save time.

So while it’s understandable that finance teams would want one tool to manage all of this in the same place for the sake of convenience, but that would not provide the results that they are looking for.  Expense management and vendor management can seem similar at first glance, but they are obviously different when you take a closer look.

Such fundamentally different processes require different tools that can effectively manage both those process really well. It does not make sense to use one tool to manage such disparate processes. A software that attempts to solve both these problems will be difficult to use for the users because it will do neither task exceptionally well. If any company is serious about accounts payable, they’ll need specialized tools for each component in order to get maximum value from each process.

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