How to Prevent Spending Leakages & Recommended Software

Many companies are still unaware that they have experienced spending leakages. These leakages go unnoticed because they generally occur in small transactions and uncontrolled purchases, resulting in a gradual decline in profits.

If not handled with the right system, spending leakages can impact operational efficiency, cash flow, and company profits.

What are spending leakages?

Spending leakages occur when a company unintentionally spends money outside of company policy without supervision. In the context of procurement, this happens when vendor payments are not included in the official supplier list.

Spending leakages also include several types of fund leakage in daily operations, such as duplicate payments, purchases outside of policy, and the use of personal cards for business needs.

Research from Procol shows that uncontrolled spending can cost companies around 10%-20% of their potential cost savings.

The main problem generally occurs when companies have difficulty tracking purchases, vendor payments, and hidden costs in operations. Even small, unmonitored transactions can become a significant financial burden.

Read More: Company Expense Policy Guideline: How to Create & Start Easily

Differences between spending leakages and budget leakages

Although they appear similar, spending leakages and budget leakages have several significant differences in the context of business spending.

Spending leakages occur when daily operational costs exceed the output produced or sold, such as inventory or production. This type of expenditure is usually related to inefficiencies in the supply chain, which directly impacts profitability and production efficiency.

Meanwhile, budget leakages are budget leaks that occur due to small, unnoticed but recurring transactions, such as automatic payments, service subscriptions, and small transactions that accumulate.

Causes of spending leakages in business

Here are five common causes of spending leakages in business

1. Uncontrolled subscription costs

Software or digital service subscription costs are often overlooked and continue to run even when not in use. Without regular audits, these costs can accumulate and disrupt cash flow.

2. Manual expense reports

Financial reports that are done manually carry the risk of input errors, double claims, and undocumented expenses. Poor reporting also makes it difficult to track expenses for verification.

3. Purchasing expenses

Large purchases of equipment without supervision often result in budget waste. Therefore, companies must set limits to control expenses.

4. Inefficient business expenses

Without applicable policies and transparency, business travel expenses can increase. Companies should establish policies regarding limits and workflow to prevent any travel expenses frauds or inefficiencies.

5. Lack of negotiation with vendors

In order not to lose potential savings, renegotiate with vendors after the initial offer. Renegotiate contracts, look for competitive offers, and build long-term relationships with vendors.

Read More: How to Build a Cost Effective Strategy to Scale A Business

6. Vendor fraud

Vendors can inflate invoices or bill for goods and services never delivered, especially when verification is minimal.

Cross-checking vendor invoices against actual deliveries helps catch vendor fraud schemes before payment is processed.

How to prevent spending leakages in business

To prevent spending leakages in business, a combination of operational controls and integrated systems is required.

• Evaluate inventory and production: Avoid excess products and overstocking, which result in wasted costs and labor.
• Control material and resource costs: Ensure that material purchases are in line with needs and efficient in their use of resources.
• Take transportation costs into account: Make accurate estimates of logistics costs to avoid unexpected cost spikes.
• Monitor finances regularly: Monitor and analyze expenditure flows regularly to detect waste before it develops into a major problem.
• Customize policies: Create automatic spending policies and set limits based on teams or projects using spend management software.

Prevent spending leakages by using a system specifically designed to provide real-time control over all company transactions.

Mekari Expense is a spend management software solution in Indonesia that helps companies prevent spending leakages by establishing a budget control system.

Mekari Expense helps companies prevent spending leakages through:

• Mekari Limitless Card: Physical and virtual business payment cards with adjustable limits to manage business expenses in a more structured manner.
• Multi-level approval: A digital approval flow to facilitate the verification and approval process for expenses such as reimbursements, business trips, and vendor payments.
• Custom policy: Automatically set limits, spending categories, and business travel rules according to business needs.
• Budget allocation: Manage budgets separately by categorizing them based on branch, team, or project.
• Centralized visibility: Manage various budget accounts from a single integrated dashboard for more transparent cash control.
• Integration with the Mekari ecosystem: Connect with Mekari Jurnal and Mekari Talenta for fast reconciliation and reporting processes.
• International security: ISO 27001 international standard certification to ensure the security of company financial data. 

Prevent spending leakages early on and optimize your business expenses with Mekari Expense.

Reference

Procol. “What is spend management? | Importance & best practices”