Maverick spend is any business spending that occurs outside of established procedures and policies.
It typically occurs when non-procurement team members procure goods and services, either from non-established suppliers or by engaging in non-contractual spend with existing vendors.
However, maverick spend can happen within procurement and purchasing teams without proper approval from an appropriate authority per your established approval workflow.
Maverick spend also goes under a few pseudonyms, the most common of which being rogue spend, shadow spending and off-contract or non-contract spend.
They’re all the same thing: business purchases that don’t follow the established rulebook.
Almost all businesses have some maverick spending going on behind the scenes, the question is, how much?
Most organizations don’t have a solid answer, but here’s the kicker:
Some estimates say that as much as 80% of your monthly spending could be maverick spending (payments for goods or services procured without proper approval or authorization).
Scary thought, right?
In this article, we’re going to help you understand maverick spending, diving into the common causes behind it before looking at seven important strategies to implement to mitigate maverick spend in your own business.
What’s the problem with maverick spend?
Maverick spend is a problem for businesses of all sizes, but it’s particularly pernicious in SMBs, who rarely have the resources to invest in a formal procurement team that can also function with the speed and agility that small businesses require.
A few of the negative impacts of maverick spend on SMBs:
- Increased costs. Less control over spending means a reduced ability to negotiate effectively, often resulting in higher costs than if goods or services were procured using established channels.
- Lack of visibility. Because spending occurs outside of established channels, it is usually poorly recorded. Finance and leadership teams then lose visibility into spending and, as a result, are impacted in their ability to produce accurate forecasts. This has a flow-on effect on budgeting. In the worst cases, it can render budgets essentially useless since they become so inaccurate.
- Compliance and legal risks. Purchases that occur outside of the appropriate channels bear a greater risk to the business, especially when vendors are unvetted. Sometimes, this means a business doesn’t comply with its internal policies. In others, it can place them at legal risk, such as when no contract is established to protect the purchase.
By putting effective strategies in place to control maverick spending, businesses can reap the benefits of better budget management, lower overall costs, increased purchasing efficiency, and improved supplier relationships.
But it's not quite as easy as it sounds.
One of the challenges particular to small and medium-sized businesses is that there is often resistance toward strategies focused on overcoming maverick spend and gaining buy-in for established procedures.
That’s because such procedures often get in the way of employees’ ability to work effectively (to buy what they need when they need it) and are seen as excessive bureaucracy.
Indeed, certain strategies can be overkill.
Employee education plays an important role here, as does the use of modern procurement technology to speed up and streamline workflows.
More on that soon. First, what causes maverick spend in the first place?
What causes maverick spending?
Maverick spend, unlike the name suggests, doesn’t just happen because employees have a tendency or desire to skirt the rules.
There are several causes behind maverick spending, many of which can be controlled to improve spend visibility and compliance.
Poorly defined policies
The first problem is that many organizations, especially SMBs, don’t have or don’t enforce purchasing policies.
When this is the case, everything is maverick spend.
As you’ll see shortly, the first step to solving maverick spending issues is to establish clear, easy-to-follow policies.
Lack of approval workflows
This one kind of fits under the same umbrella, but we’ve split it out as a separate point because it’s one of the most common causes of maverick spend.
If your organization doesn’t have a clear pathway for requesting and receiving approval to purchase, then employees won’t think to ask.
Competitive maverick spending
Competitive maverick spend happens when employees decide to purchase from a non-establihsed supplier because they see an opportunity to save the business money.
Supplier A is approved and vetted, but this new vendor, Supplier B, is 30% cheaper. The employee, wanting to do right by the company, buys from Supplier B and engages in maverick spending.
Told you it’s not just about breaking the rules.
Decentralized procurement
Decentralized procurement is where department or branch leaders have the authority to purchase rather than having all procurement tasks taken care of by a single business unit (which would be centralized procurement).
Because more people in the organization are able to engage in purchasing, it’s harder to maintain control over processes, and maverick spending emerges as a result.
Lack of training
One of the biggest causes of regular rogue spending is the need for more education and understanding of the importance of following established purchasing workflows.
If employees don’t understand why these processes exist in the first place, they are more likely to see them as an impediment and, therefore, disregard them entirely.
How to keep maverick spend under control: 7 strategies
Feeling motivated to cut down on maverick spend?
While you might not be able to get rid of it for good (some out-of-contract spend will inevitably occur), by following these seven strategies, you’ll be able to make it a much smaller portion of your overall business expenditure.
1. Document and distribute clear spending policies
Step one is to ensure that all employees have access to your procurement policies.
That might require that you actually create those policies if you’ve not yet established them.
Once you’re clear on your expectations, document them and illustrate workflows clearly, then share that documentation with your team.
Use an online document-sharing platform like Notion or Google Drive so that you can update documents as required and ensure that the most up-to-date version is always the one in circulation.
2. Centralize spend data and leverage modern tools
An expense management software (such as BILL) is the perfect partner for getting maverick spend under control.
Start by setting up your spend management software so that all expense data is centralized in the same place.
This will help with the next two steps, allowing you to more easily create spend analyses and automated workflows.
3. Conduct regular spend analyses
Establish a cadence for reviewing company spending and spotting where maverick spend is occurring.
You can divide all spending into one of two camps (maverick spend or in-contract spend). Then, filter by different categories (such as department, vendor, or employee) to highlight problem areas to tackle first.
If rogue spend is a large problem right now, you’ll probably want to do this monthly. Once you’ve started to get it under control, you can move to a quarterly cadence.
4. Streamline and enforce approval workflows
Your approval workflow is the set of steps employees must follow when they want to make a purchase.
For example, if a regular (non-procurement) team member needs to purchase something, they might raise a purchase requisition with their manager, who approves it and forwards it to the procurement team.
Procurement then does its thing (identifying and vetting potential vendors, negotiating a deal, and setting a contract in place) before approving the purchase requisition and requesting a purchase order.
Financial operations solutions like BILL can help you streamline this process using approval workflow automation, stopping requests from falling through the cracks and making it easier to see where a given purchase requisition is in the process.
5. Centralize procurement
Centralizing procurement can be an effective tactic for controlling maverick spend, if you have the budget for a dedicated procurement team.
The idea here is that you set up a specific procurement business unit (it can be just one person for smaller businesses), through which all purchasing must take place.
This, at the very least, makes it easy to identify when maverick spend happens and deal with it as soon as it arises.
6. Stop sharing credit cards
If a fully centralized model isn’t right for your company (it does slow things down a little), an alternative method for improving spend visibility is to increase the number of spending cards in circulation.
Rather than just having one business credit card for all spending, you provide multiple cards (with specified spend limits) to all purchasing authorities so you can easily track spending by department or employee and double-check that all purchases align with your procurement policies.
7. Invest in team training
Finally, you’ll want to put in place some kind of regular training initiative to help your employees develop a stronger understanding of the importance of following the policies and processes you’ve put in place.
You might start by ensuring that every procurement SOP (standard operating procedure) document starts with a “Why we have this policy” section, then conduct an all-hands or department-based rollout for purchasing training.
Another great practice is to host a quarterly Q&A session, where employees can pose questions to procurement team members about why specific practices exist (especially when they feel that these practices get in the way of their day-to-day work).
This will also help strengthen the bond between procurement and the rest of the business, resulting in greater cohesion and less inter-team tension.
Cut down on maverick spend with BILL
Maverick spend poses a significant threat to a company's ability to create accurate budgets and forecasts, control costs, and maintain compliance with legal obligations.
Even the smallest businesses should put policies in place to counteract maverick spending, the most effective of which will involve modern financial solutions with features like:
- Automated approvals workflow
- Invoice matching automation
- Spend visibility and reporting functionality
BILL, our financial operations platform with built-in accounts payable automation, is the perfect partner for cutting down on maverick spending.
