While it’s good to be a maverick in some situations, the company bank account isn’t the place for it. Yet every day, thousands of dollars disappear from company budgets due to the activity of corporate mavericks.
We’re referring, of course, to maverick spending — the insidious cash leak occurring in virtually every company budget. While one-off purchases and emergent expenses certainly come up, controlling maverick spending is one of the most critical actions to preserve the company’s hard-earned capital.
Today we’re covering the basics: what constitutes “maverick” spend, how and why it happens, how it can damage the organization, and how to control the issue so it doesn’t impact revenue or create liability. Implementing these changes can make life easier for procurement teams and the stakeholders they serve.
Here's what we'll cover:
- What does maverick spend, or dark spend, mean?
- Examples of maverick spend
- How maverick spend can hurt the company’s bottom line
- 5 SaaS management solutions to avoid maverick spend
What does maverick spend, or dark spend, mean?
Maverick spend, also called dark or rogue spending, is any purchasing activity that happens outside the company's documented purchasing processes. This extraneous buying activity is challenging to track and resent a host of problems for the organization.
In some ways, maverick spending is a symptom of problems as much as a cause. Typically, this type of off-the-books expenditure happens when buyers feel they don’t have a clear path to meeting their needs. Replicated across a large organization, maverick spending can account for as much as 80 percent of the total procurement budget.
Examples of maverick spend
Corporate card spending goes rogue
A salesperson is on the road. They identify the need for a piece of software to use at a conference, but there is no time to get it approved. While they only need it for a short period, the software is only available annually. They put the purchase on a corporate credit card, but it’s never reported to Finance or IT and no renewal information is recorded. The salesperson leaves the company, but the card remains open, and the software contract quietly auto-renews for multiple years undetected.
Expense reports without a process
A staff member buys a piece of computer equipment for a project, but because there isn’t a clear approval process and it’s an unplanned purchase, the team member expenses it. While the purchase is approved by the Department Lead as a “spot buy,” the purchase is never allocated a budget or recorded for capital assets. There is no record of the purchase beyond the receipt, so there is no way to track or retire the equipment at end-of-service.
Maverick spending creates an inaccurate view of the company’s total spend. Without a home on the budget report, purchases that could be tied to a project or client end up categorized as indirect spend alongside the office supplies. This muddies the view and reduces the organization's ability to plan spending effectively.
How maverick spend can hurt the company’s bottom line
Traceability isn’t the only problem with maverick spending. Sustained, undocumented expenditures in an organization can lead to bad reporting, cash flow issues, and even the need for risk mitigation measures.
Waste spending accounts for up to 30 percent of an enterprise budget. That percentage can reach tens of thousands of dollars of lost capital for a medium or large company. Losing money is always to be avoided, but these losses compound by preventing future growth and cash stability.
Uncontrolled maverick spending is responsible for:
- Inaccurate forecasting
- Budget overruns
- Waste software spending
- Unstable cash flow
- Unexpected spending on risk management
Maverick buying most often occurs because buyers don’t have a clear path to getting the things they need. They might believe self-serve procurement is faster, or they may not understand the importance of keeping purchases within the procurement system. Therefore, the best way to avoid these undesirable consequences is to improve the spend management process. With the right tool and process in place, SaaS buyers can not only eliminate the root causes of maverick spending but tip the balance toward cost savings.
5 SaaS management solutions to avoid maverick spend
Software can help companies manage maverick spend issues efficiently so that these rogue purchases won’t occur in the first place. Using a vendor management system makes it easy to get the things employees need, see where money is going, and improve the purchasing workflows automatically.
Here are five ways to implement where SaaS management to avoid rogue spend:
Define your procurement policy
When employees know better, they can buy better. Clearly defining the process and educating stakeholders on expectations will make maverick spending less likely by giving everyone a clear path to success. Building strong prerequisites into the procurement program ensures that software meets compliance, legal, and budgetary standards.
With a software stack management tool, admins bake prerequisites and guidelines right into the purchasing system. The system allows companies to set budgets, create dynamic rules, and curate the list of preferred suppliers. Define requirements by department, role, or even dollar value of the deal. This feature actively eliminates instances of non-compliance and reduces procurement risk automatically.
Automate purchase approvals
When progress is slow, people get creative. For this reason, having a fast, functional approval process in place can help buyers avoid the temptation to go rogue. Define approvers upfront, and lay out the path to approval.
SaaS management tools use automation to avoid the delays and back-and-forth struggle of manual approval. The system can automatically route approvals to the correct individuals, record their answers, create a communication channel for questions and clarifications, and let buyers know what stage their request is in. This visibility and clarity significantly cut down on occurrences of buying “outside the system.”
Build a strategic sourcing program
Sometimes, maverick spend is as much about who the company buy from as how you buy it. Using strategic sourcing helps companies get the best price, leverage, and terms when SaaS buying — it also mitigates the risk that comes along with buying from new vendors or unknown suppliers. It also reduces the burden of constantly onboarding new suppliers and increasing evaluation and lifecycle management efforts.
E-procurement software helps buyers adhere to strategic management initiatives. It creates an easy-to-use marketplace of suppliers at your fingertips, so you never have to worry if the solution you’re looking at will meet departmental standards. Curation also strengthens the supplier relationship by ensuring partnerships remain in place. It's a win for the company, the buyers, and your suppliers.
Increase spend analysis and visibility
Sunshine is the best antidote to dark spend. Improving your spend management with robust reporting and real-time spend visibility can help surface instances of rogue spending so they can be tracked and remedied. It allows you to identify gaps in your procurement process and areas where more education on the process may be needed.
With SaaS management software, reporting and spend data analysis are built in. It allows the Finance and Procurement department to analyze and audit purchases, ensure all spending is captured within the system, and avoid later issues like auto-renewal and shelfware. Software can also integrate with other systems (such as ERP, supply chain management, and accounts payable systems) to reduce data redundancy and make planning future capacity a much easier process.
Improve your contract management
Once maverick spending occurs, it’s essential to get things back on track and begin managing those supplier relationships effectively. Contract management is critical for avoiding future cash leaks in your procurement process. With automated supplier management, contracts details can be centralized, and you can put renewal and supplier evaluation processes on autopilot. Buyers will have the information they need to make better decisions at renewal time, without surprises or persistent wasted spending.
How Vendr can help your company avoid dark spend
The right SaaS management solution allows you to achieve all the above spend control measures automatically, without adding more hours to the day. Vendr:
- Gives buyers a user-friendly system to select the best software based on their unique criteria. These occur within a list of approved suppliers for better adherence to budgets and strategic sourcing goals.
- Defines and automates the approval process for a faster procurement cycle.
- Tracks spending and reports on activities by department, project, or line level.
- Helps procurement professionals manage the renewal and supplier management process without getting mired in spreadsheets or a manual tracking process.
Get an inside look into the platform where you can discover and buy new tools, see how much you're saving on software, and stay up to date on your IT stack with our free guide to the Vendr SaaS buying platform.