How Seizing Control of Your Budget Can Ease a Cash Crunch

By: Mark A. Brousseau | October 19, 2021

ARTICLE — Turbulent times can create a ‘cash crunch’ for organizations:

  • Declining revenues and profitability
  • Slower customer payments and more bad debt
  • Higher Days Sales Outstanding (DSO)

Cash flow issues can threaten the survival of a business – particularly those with low cash reserves or unstable cash flows. Even businesses that appear to be in good financial shape are not immune to cash flow issues, depending on how long it takes for demand and supply chains to return to normal.

Draining cash reserves and drawing down credit lines only go so far in this climate. That is why more organizations are trying to reign in their spending. Two-thirds of organizations plan to reduce their spend as a result of the economic turmoil caused by COVID-19. That is according to a survey of attendees to a virtual town hall meeting held by the Institute of Finance and Management (IOFM).

But getting control over spending – whether it is for expense management, bottom-line profitability, or large project management – will be a tall order for most organizations. Seventy-four percent of organizations admit that the way they currently manage their spending has room for improvement.

Need proof?

Less than one-in-five of the organizations surveyed during the IOFM virtual town hall meeting said they have tight control over 75 percent or more of their overall corporate spend. That leaves a lot of opportunity for unpredictable and unauthorized spending at a time when organizations are watching every penny.

And it is not just travel and entertainment expenses that organizations have trouble controlling. Forty-four percent of organizations admit that their spending on services is not well managed. Thirty-five percent of organizations said their spending on indirect materials is lacking.

The spend management challenge can be even more daunting for large global enterprises with employees or budget managers raising requisitions from multiple locations and rapidly growing software companies trying to control expenses to demonstrate to investors their ability to execute.

The operational disruption caused by COVID-19 is making things worse. Twenty-five percent of organizations said the COVID-19 pandemic has negatively impacted their ability to manage spend.

All this comes at a time when 74 percent of organizations have a spend management program in place, per IOFM. Why is it so hard for organizations to tightly manage their corporate spend?

The root of the problem is that 46 percent of organizations surveyed during the IOFM virtual town hall meeting do not have unified, real-time visibility into corporate spending – even though most organizations have invested millions of dollars in enterprise resource planning (ERP) applications.

What gives?

ERP applications do not provide the granular budget data an organization needs in a cash crunch:

  • Complete budget control and visibility
  • Visibility into potential actuals in the procurement pipeline
  • Budget availability prior to supplier obligation

How budgetary control solutions improve spend management

That is why more organizations are deploying budgetary control solutions.

Budgetary control solutions integrate with a legacy ERP application such as Oracle NetSuite to control spending at the transaction level against budgets. The technology regulates and controls expenditures against pre-set authorized budgets in real-time, encumbers expenses throughout the procurement lifecycle, and tracks hard and soft commitments in purchase requests or purchase orders.

Improving budgetary control can help an organization better manage its spending:

  • Budget checking is enforced when purchase orders or requisitions are created.
  • The possibility of expense over-runs is eliminated.
  • Procurement governance is improved through purchasing best practices.

This is just what an organization needs during a cash crunch.

Learn how the PyanGo Advanced Budgetary Control for NetSuite solution can help your organization better control its spending during turbulent times.

Contact us to arrange a product demonstration.