The Cost of Maverick Spend (and How to Avoid It)

"Maverick spend", often misunderstood as fraudulent or irresponsible spending, is a common issue in businesses that bypasses formal procurement processes. It usually refers to spend purchases made that do not align with a company's established procurement or compliance policies, and often arises as a result of a purchasing mistake or a lack of visibility and control over procurement processes.

While it may not occur as a deliberate act of malice, it has direct and significant impacts on a company’s financial health. Some consequences often include: missing out on spend optimisation or cost-saving opportunities, reduced quality control, loss of trust and weakened relationships with suppliers, and promoting company-wide non-compliant behaviours. In the short form, maverick spend could actually be costing your business a lot more than you initially bargained for.

In this blog post, we aim to provide you with a comprehensive guide to what maverick spend is, and where it falls under the larger term of uncontrolled spending. We will also dive into the true costs of maverick spend, and emphasise the importance of reducing it by implementing spend control techniques to further improve your procurement processes in place. Finally, we will unpack a few solutions that can be utilised to help you control maverick spending, such as AI-powered automation tools like Kloo that leverage innovation for spend management.

Understanding what maverick spend is, why it occurs, and how to eliminate it can help businesses maintain better spend control and visibility over their finances and procurement processes.

Contents:

1. What is Maverick Spend?
2. Why Does Maverick Spend Occur?
3. What Types of Maverick Spend Exist?
4. The Real Cost of Maverick Spend
5. How to Reduce Maverick Spend
6. How AI Automation Solutions Eliminate Maverick Spend
7. The Bottom Line

What is Maverick Spend?

Maverick spend refers to the purchasing of goods or services outside of approved procurement channels and supplier agreements. This type of spending typically goes undocumented until it appears as an invoice, making it challenging to manage and control. Maverick spend can lead to higher costs due to unnegotiated prices, duplicate payments, and penalties for late payments.

Why Does Maverick Spend Occur?

Several factors contribute to maverick spend within organisations:

1. Lack of Effective Self-Service Purchasing Tools: Many employees resort to maverick spending because they lack access to easy-to-use, self-service purchasing tools. When procurement processes are cumbersome or time-consuming, employees may bypass them to meet their immediate needs.

2. Non-Compliant Culture: A workforce culture that does not prioritise compliance with procurement policies can lead to maverick spend. This non-compliant behaviour often stems from inadequate communication and understanding of the procure-to-pay policies.

3. Poor User Experience: Adding on to having a lack of self-service procurement tools, complex and inefficient process workflows and non-intuitive platforms can discourage employees from following proper procedures. Long approval times, intimidating ERP systems, and overly complicated user interfaces can lead to off-policy purchases.

4. Lack of Communication: Insufficient communication about company-wide procurement policies and procedures can result in employees unknowingly engaging in maverick spending.

What Types of Maverick Spend Exist?

Maverick spend by definition involves uncontrolled and unpredictable spending, but there are varying degrees with which both of these traits manifest.

• Uncontrolled and unknown: An invoice without an associated contract received from a vendor you haven’t worked with before.
• Partly controlled and partly known: An incomplete invoice sent from a vendor you are familiar with. For instance, you might know the identity of the supplier but aren’t aware of the details of what was purchased.
• Partly controlled and known: You have a contract and an approved vendor, but some of the details of the transaction are missing.

Regardless of what type, maverick spending can happen almost anywhere for any type of purchase, from advertising to SaaS subscriptions, to manufacturing and professional services.

The Real Cost of Maverick Spend

Research from The Hackett Group highlights the significant impact of maverick spend on supplier costs. Their findings suggest that organisations might lose up to 16% of their negotiated savings when stakeholders buy outside of an organisation’s supplier list. Additionally, 75% of surveyed organisations reported that maverick spend was caused by a lack of self-service buying tools, highlighting the importance of implementing effective low-friction tools for purchase requisition.

How to Reduce Maverick Spend

1. Implement Intuitive Self-Service Tools: Providing employees with easy-to-use self-service purchasing tools can significantly reduce maverick spend. These tools should simplify the purchase requisition process and integrate seamlessly with existing systems.

2. Enhance User Experience: Streamlining and automating procurement processes can improve user experience. Automation reduces the complexity of procurement tasks, making it easier for employees to comply with policies. Implementing AI-powered tools can further simplify purchase requests and approvals.

3. Foster a Compliant Culture: Educating employees about the importance of procurement compliance and regularly communicating policies can help foster a culture that prioritises proper purchasing procedures. Regular training and clear guidelines are essential.

4. Standardise Procurement Processes: Establishing standardised procurement processes and enforcing them can help reduce maverick spend. This includes setting up approval workflows, monitoring purchases, and ensuring all transactions go through approved channels.

5. Use Purpose-Built Systems: Adopting purpose-built procurement systems tailored to your organisation's needs can enhance visibility and control over spending. These systems provide real-time data and analytics, helping identify and address maverick spend promptly.

How AI Automation Solutions Eliminate Maverick Spend

Kloo is helping to pioneer the future of spending and purchase requisition in financial operations. Traditionally seen as an organisational burden, the rebranding of purchase orders to focus on spend approval can drive better compliance, more timely approvals, and cut off maverick spending behaviours.

Through AI-powered automation, Kloo encourages best practice spend management by providing earlier visibility over invoices, preventing late payment penalties and eradicating wasted spend, making the overall adoption process much easier for finance and business users. Here are some of the few ways Kloo's AI-powered automation enables best practice improvements for spending and purchasing:

AI-powered systems now allow employees to create purchase requests using natural language, making the process as simple as sending a message. This reduces the complexity and training required for using procurement software, as the AI interprets and processes the request accurately. By enabling natural language input, the barrier to raising purchase orders is significantly lowered, encouraging higher compliance and quicker adoption rates.

AI can assist in negotiating terms with suppliers by analysing past data, market trends, and supplier performance. This ensures that businesses get the best possible terms without extensive manual effort. The AI can also suggest alternative suppliers or renegotiate existing contracts, thus optimising costs and improving the efficiency of the procurement process.

Traditional approval workflows can be rigid and time-consuming, often causing delays in the procurement cycle. AI-driven approval workflows are designed to be more dynamic, adapting to the context of each request. They can automatically route approvals based on predefined criteria such as spend limits, project codes, or department policies, ensuring that approvals are obtained swiftly and in compliance with organisational policies. This results in smoother and faster processing of purchase requests.

What used to be a cumbersome process has now been made intuitive with complete automation. Once a purchase request is approved, AI can automatically generate the corresponding purchase order, complete with all necessary details and compliance checks. This eliminates the manual steps involved in creating POs, reducing errors and administrative overhead. Automated PO generation ensures that orders are placed quickly and accurately, maintaining a seamless flow from request to procurement.

The Bottom Line

Maverick spend can significantly undermine a company’s financial stability and procurement efficiency. By understanding its causes and implementing strategies to address them, businesses can gain better control over their spending. Embracing modern procurement tools and fostering a culture of compliance are key steps towards reducing maverick spend and ensuring a healthier financial future for your organisation.

In summary, reducing maverick spend involves a combination of intuitive self-service tools, enhanced user experience, a compliant culture, standardised processes, and purpose-built systems. By focusing on these areas, businesses can minimise unauthorised spending, maximise negotiated savings, and achieve a more efficient and compliant procurement process. These efforts will not only curb maverick spend but also significantly improve overall financial health and operational efficiency.

To learn more about Kloo’s product offering for spend management, visit our product page here.