The cost of maverick spend (and how AI can help you avoid it)

Maverick spend, often mistaken for fraudulent behaviour, occurs when purchases bypass formal procurement processes, usually due to mistakes or a lack of visibility and control. While not typically malicious, it can harm a company’s financial health by missing cost-saving opportunities, reducing quality control, damaging supplier relationships, and fostering non-compliant behaviours. Ultimately, maverick spend may be costing businesses more than anticipated.

This article will dive into the causes of maverick spending, why it occurs, and how to eliminate it with AI-powered solutions that help businesses maintain better spend control and visibility over their finances and procurement processes.

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 spending can result in 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 pioneering the future of spending and purchase requisition in financial operations by rebranding purchase orders to focus on spend approval, driving better compliance and timely approvals, reducing maverick spending. Through AI-powered automation, Kloo enhances spend management by offering earlier invoice visibility, preventing late payment penalties, and eliminating wasted spend, simplifying the process for finance and business users.

Key improvements enabled by Kloo’s AI-powered automation:

• Natural language purchase requests: Employees can create purchase requests using natural language, simplifying the process and lowering the barrier to compliance and adoption.
• AI-assisted supplier negotiation: AI analyses past data, market trends, and supplier performance to negotiate better terms, suggest alternatives, or renegotiate contracts, optimising costs and procurement efficiency.
• Dynamic approval workflows: AI-driven workflows adapt to each request’s context, routing approvals swiftly based on criteria like spend limits and department policies, ensuring smoother and faster processing.
• Automated PO generation: AI automates purchase order generation after approval, reducing manual effort, errors, and administrative overhead, ensuring quick and accurate orders from request to procurement.

Conclusion

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 that leverage AI-powered solutions and fostering a culture of compliance are key steps towards reducing maverick spend and ensuring a healthier financial future for your organisation.

To learn more about Kloo’s offering for AI-powered spend management and optimisation, visit our website here.