Effective spend management is a crucial component of running a successful small or medium-sized enterprise (SME). Without a structured way to track and control expenses, you risk overspending, inefficiencies, and cash flow issues that can hinder growth.
For SMEs, implementing an effective spend management strategy can make all the difference in staying competitive, especially in industries with tight margins. By allocating resources effectively, you find more opportunities to invest in growth opportunities, improve profitability, and maintain financial stability.
And as we’ll see, proper tooling is crucial. Digital spend management platforms let you monitor expenses in real time, set spending limits, and gain better financial insights – all leading to better decision-making.
Looking for a better way to control your business spend?
This article explores why spend management matters for SMEs, the key benefits of implementing a structured approach, and best practices to take control of your business finances. With the right spend management strategies, you reduce financial waste, optimise cash flow, and ultimately drive sustainable business success.
What is spend management?
At its core, spend management is the strategic process of tracking, controlling, and optimising all business expenses. These include operational costs, supplier payments, and employee expenditures.
It involves more than just cutting costs – it’s about maximising value to ensure that every dollar, pound, or euro spent contributes to a company’s financial and operational goals. By managing costs effectively, businesses can reduce waste, improve profitability, and maintain financial stability.
In other words, it’s a matter of financial discipline.
What does spend management involve for SMEs?
This spend management process covers a wide range of business expenses, including vendor payments, procurement costs, employee reimbursements, and operational expenses.
A strong spend management strategy includes several key components:
Expense tracking: Recording and categorising business spend in real time to maintain visibility and control.
Budget management: Setting financial limits to prevent overspending and maintain spend compliance.
Accurate forecasting: Predicting future expenses with relative accuracy to improve financial planning.
Enforcing policies: Ensuring compliance with company spending policies, and preventing unauthorised or non-essential expenses.
Administering approvals: Implementing structured approval workflows for purchases and contract management, to ensure that spending is justified and aligned with business goals.
Reporting & analysis: Using financial data to identify cost-saving opportunities, detect inefficiencies, and optimise overall spending.
In short, it’s a lot. And without a strong plan – and the right tools – it can put a real strain on managers and your finance team.
But it’s also non-negotiable. Without a clear strategy, you risk overspending, mismanaging your budget, and running into serious cash flow issues.
We’ll look at best practices to set up your own spend management processes shortly. But first, let’s go deeper into why doing so is particularly important for small and medium-sized businesses.
What are the benefits of spend management for SMEs?
Spend management is often overlooked – but vital – for SMEs. You operate with tighter budgets and more limited resources compared to large enterprises. Every expense matters, and a lack of oversight can quickly lead to cash flow problems, unnecessary expenditures, and financial instability.
While every modern business needs some form of spend management in place, here are five reasons why it’s so critical for SMEs.
- 1. Improves cash flow & financial stability
Poor cash flow management is one of the leading reasons SMEs struggle financially. In fact, around 50,000 UK small businesses fail each year due to cash issues. Unmonitored spending can lead to budget shortfalls, delayed supplier payments, and even missed payroll.
With proper spend management, you ensure your business always has the liquidity required to meet your financial obligations. No missed payments because you’ve overspent this quarter.
A structured approach helps businesses:
- Identify unnecessary expenses and cut costs
- Allocate budgets efficiently across departments
- Maintain healthy working capital levels for future growth
All of which are hard to achieve without a close eye on company spend.
- 2. Enhances cost controls & reduces wastage
Many SMEs lose money due to inefficient spending habits, duplicate payments, and unapproved purchases. Implementing a clear spend management strategy lets you monitor every transaction and eliminate unnecessary expenditures.
By automating spend tracking and approvals, you can:
- Detect overspending patterns before they escalate
- Set spending limits for different departments or employees
- Optimise vendor relationships and negotiate better payment terms
- Avoid penalties for late payments or missed deadlines
Even better, you can even take opportunities for early payment discounts from key suppliers, and make company cash go further.
- 3. Increases operational efficiency
Tracking, paying, and reimbursing expenses can be time-consuming and error-prone. And so can paying supplier invoices. Every scanned receipt, follow-up email, or “quick chat” about your expense policy costs the whole team time.
In fact, slow expense processes are the number one complaint among SME accountants today.
Modern spend management helps SMEs:
- Automate repetitive tasks
- Reduce the time spent on expense reporting and reimbursements
- Minimise fraud risks and basic human error
- Digitise receipts, invoices, and other important documents
- Improve financial accuracy and reporting overall
Most importantly, you remove constant, low-value distractions and let your whole team focus on the work that really matters.
- 4. Strengthens compliance & policy adherence
SMEs must ensure that all business spending aligns with internal policies and regulatory requirements. That’s both a legal requirement in many cases, and certainly financial best practice.
Without a structured spend management approach, you face compliance risks, tax issues, and even fraud – both malicious and unintentional. At the very least, you may find employees spending company funds in ways they would never spend their own money.
While most companies have some form of written expense policy, most employees either don’t know it or look for loopholes and exceptions. Here, your best weapon is to build your policy into the spending methods team members use everyday.
A centralised spend management system automates approvals, categorises transactions, and integrates with accounting software, freeing up valuable time for finance teams to focus on strategic initiatives.
A spend management system gives you:
- Pre-approved spending policies for employees, tailored to their team or seniority level
- Audit-ready records for tax and compliance purposes
- Greater financial transparency and accountability
- Company cards which prevent unauthorised spending
Crucially, you shouldn’t have to discipline spenders after mistakes were made. Create the conditions for compliant spending from the start, and your business stays in sound financial health by default.
- 5. Supports business growth & scalability
As any company grows, managing expenses manually becomes increasingly challenging. For some SME owners, the only way to prevent harm is to micromanage, or create the strictest possible rules for everyone.
But as your team grows and you add new locations, entities, and vendors, this form of expense management becomes a real bottleneck. Your whole team – from travelling salespeople to outsourced accountants – must be free to make smart decisions and help the business grow.
You need both sound, smart policy controls, and to give your teams the freedom to work efficiently.
An automated, centralised spend management strategy helps you:
- Scale operations without losing control over costs
- Gain real-time insights into spending trends
- Make data-driven financial decisions for future expansion
- Give employees frameworks to spend responsibly and efficiently
- Spot issues early, before they get out of hand
There’s a surprisingly fine line between monitoring costs closely and responsibly, and those controls becoming a real impediment to growth and effectiveness.
7 spend management best practices for SMEs
It’s one thing to understand why proper spend management is so important. But especially where you already have processes in place, it’s quite another to make the changes required.
Recognising that you won’t have perfect processes overnight, here are seven key steps you can take right away.
1. Set clear expense policies
You need clear, comprehensible rules before anyone spends a penny of company money. Those rules also need to be easy to find and follow. The last thing you need is people taking their own interpretations, or bringing their previous company’s policies with them.
You should:
- Clearly define what employees can and cannot spend on, and what to do if they’re not sure.
- Ensure all employees understand the policies to avoid non-compliant spending.
- Ask for feedback and iron out any grey areas in the rules.
- Monitor compliance on an ongoing basis, and review your policy regularly.
Your company expense policy should include guidelines for travel, client entertainment, office supplies, and subscriptions, at least.
It’s one thing to understand why proper spend management is so important. But especially where you already have processes in place, it’s quite another to make the changes required.
Recognising that you won’t have perfect processes overnight, here are seven key steps you can take right away.
2. Use digital expense management systems
Instead of relying on manual reimbursement processes, SMEs should invest in a good spend management platform. Digital tools eliminate paperwork, reduce administrative work, and provide instant visibility into transactions. They also offer real-time expense tracking, automated approvals, and detailed reporting.
That real-time aspect is crucial. Without it, you have to wait until the end of the month (or quarter) to accurately know what each team has spent, and why. Which means you have no control over expenses as they occur.
Digital tools let your team submit costs as they go, rather than in big chunks on the last Friday of the month. For the business, this is more efficient and dynamic. And on a human level, it’s a huge administrative burden lifted from employees at their busiest time. Technology has come far, so why not take advantage of it to streamline your processes? From AP automation software, to expense categorisation, to purchase order-matching there’s a role that technology and automation can play in SME spend management.
There’s simply no reason to collect paper receipts in our digital age. Modern expense management tools mean you don’t have to.
3. Automate invoice & accounts payable processes
While expense claims might be the least popular spend process in any business, invoices might be the most impactful. You almost certainly send out more cash in invoices than credit cards or expense claims. They also tend to be higher value, and errors can be more costly – both in admin and penalties.
All of which makes automation appealing and highly valuable. Managing supplier invoices manually can lead to delayed payments and inefficiencies. Whereas automating accounts payable ensures timely payments, prevents late fees, and strengthens vendor relationships.
Automation also cuts out basic errors and the back and forth between employees, which quickly become a significant burden. Invoices should be processed and paid in seconds, and it’s usually old fashioned, manual processes which stand in the way.
Finally, efficient invoice payments make a real contribution to the company ecosystem. Over 50% of UK small businesses struggle with cash flow because they’re waiting on unpaid invoices. Your suppliers rely on you to pay on time, and failing to do so creates a vicious cycle for all SMEs.
4. Implement corporate expense cards
The best answer to painful employee expense claims is usually to avoid them altogether. And the best way to do this is to equip team members with safe, controlled company cards.
These prepaid or corporate cards with built-in spending limits ensure better control over business expenses. Employees can make necessary purchases without exceeding budgets, and finance teams can track transactions in real time.
That’s obviously useful for traveling team members, who can confidently buy the food and supplies they need without going out of pocket. We regularly hear stories of people on the road for weeks or more at a time, with significant company expenses on their personal credit card bill.
But it’s also ideal for subscription payments, including important company software. These would normally go on a shared company card, which makes it almost impossible to know who approved it, which team needs it, or when the subscription is due to renew.
Instead of relying on messy spreadsheets, you can create virtual credit cards and assign them to the right person, team, and budget from the start. You always know who made the payment, when the next renewal is due, and can easily transfer the payment to a new cardholder if the first person leaves the company.
You no longer need to share card details on a Post-It, or have hundreds of company subscriptions clogging up the CTO’s card.
5. Conduct regular spend audits
Routine spend audits help businesses identify cost-saving opportunities, detect fraudulent transactions, and ensure policy compliance. By analysing spending patterns, SMEs can refine their budgets and optimise expenses for maximum efficiency.
The problem, of course, is they take real time and energy to conduct. Few companies have pristine spending records, and it takes a detective to get to the bottom of where all the cash has gone. Plus, if you’re working with out-of-house accountants, they won’t know the right people to talk to or where to find critical information.
Again, good spend management software does the hard work for you. Because every cost is tracked to the right person, team, and budget, you can view or export all the information you need in seconds. You remove all the data manipulation and detective work, and get right to the analysis.
Your quarterly or annual spend reports now only take a few minutes. And you’re ready to get to the important business of planning budgets and building the forecasts your company relies on.
6. Integrate with accounting software
You can’t invest in spend management without knowing how your existing accounting software will operate with it.
Seamless integration with accounting software like Xero and Quickbooks will ensure you can see your cashflow in real-time and make informed business decisions without waiting for month-end. The OFX Global Business Account offers two-way sync with Xero and Quickbooks so you can get better visibility and control of your spending alongside your accounting software.
Although not imperative, it may also be helpful to consider integrating spend management with other business functions, such as procurement, customer relationship management (CRM), and enterprise resource planning (ERP).
7. Identify key stakeholders
As with any business function, it is crucial to have an individual or department take responsibility (and credit) for implementation. Key stakeholders and roles for spend management in SMEs usually include roles such as:
- Chief procurement officers (CPOs)
- Chief supply chain officers (CSCOs)
- Finance leaders
- Strategic sourcing and procurement teams
It’s always a good idea to have your business invest in an expert to lead and implement your spend management strategies.
3 common challenges in spend management for SMEs and how to overcome them
Understanding spend management best practices and overcoming common challenges go hand in hand when running a successful SMEs. Before implementing anything, it’s a good idea to run through the potential problems you may face, and keep solutions in mind so you’re always prepared.
- 1. Lack of centralisation
Fragmented spend data is a major challenge that is common to many SMEs, as it means a lack of visibility for budgeting and a loss of control over cash flow.
Solution:
To counteract this, businesses need to consolidate all spending data on one expense management platform and ensure department heads with budget responsibility are aligned with the tool and its purpose.
- 2. Poor data quality
One of the hardest parts of spend management is keeping accurate and complete expenditure data. This is especially difficult for businesses that are using manual processes or multiple spending tools.
Solution:
To ensure your spending data is clean and reliable, it’s best to manage all your spending on one platform and invest in a tool that delivers accurate data collection and categorisation, so you can trust the numbers you see.
- 3. Slow approvals
Slow approvals are often one of the most common obstacles getting in the way of business efficiency.
Solution:
Whether it’s due to a lack of resources or unclear approval flow, having an automated expense management system can do wonders. Not only does this eliminate the need for manual administrative tasks, but it also ensures there’s a clear approval structure at play.
Final thoughts
For SMEs, effective spend management is no longer optional – it’s a critical component of financial stability and long-term success. A robust spend management strategy lets you set clear budgets, enforce policies, and prevent unnecessary costs. By streamlining approval workflows, automating expense tracking, and leveraging insightful analytics, you can make informed decisions and build towards your financial goals.
Just as crucially, smart automation reduces manual errors and administrative burdens. You and your team are then free to focus on strategic initiatives rather than routine expense processing. Absolutely nobody enjoys expense admin. With the right tools, you never have to put up with it again.
Whether it’s supplier payments, employee expenses, or international multi-currency transactions, having the right spend management solution in place ensures that businesses can operate with agility, efficiency, and confidence.
If you’re looking for a powerful and intuitive spend management platform that helps you take full control of your business expenses, OFX is here to help.
Our solution is designed to simplify spend management, optimise cash flow, and support your business as it grows.
Want to see our spend management platform in action?
Book a demo or take a virtual tour and try out the OFX Global Business Account today. Better yet, sign up and start a free trial today.
Contact us to learn more about how OFX can transform the way you manage business expenses and drive long-term success.
This article is purely for informational purposes only and should not be treated as advice. OFX will not be held liable for any losses incurred as a result of individuals or businesses relying on the information contained in this article
IMPORTANT: The contents of this blog do not constitute financial advice and are provided for general information purposes only without taking into account the investment objectives, financial situation and particular needs of any particular person. UKForex Limited (trading as “OFX”) and its affiliates make no recommendation as to the merits of any financial strategy or product referred to in the blog. OFX makes no warranty, express or implied, concerning the suitability, completeness, quality or exactness of the information and models provided in this blog.
