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How To Save Millions Simply By Reducing The Cost Of Spending
By Peter Granger
Despite widespread agreement that effective expense management is critical to business success,
there's still one aspect of expense management that tends to be handled badly. And it's costing many
businesses millions each year! Ironically, it's a cost that can be drastically reduced (all but eliminated)
overnight.
I'm talking about the processing costs associated with purchases. They're called "transactional
processing costs"; they're not the cost of the purchase itself, but the cost of the transaction.
The Dollar-Value of Transactional Processing Costs
The end-to-end cost of processing high volume, low value purchases (such as travel, entertainment,
contract labor hire, training, employee claims, stationery, publications, books, kitchen supplies, etc.)
can be exorbitant. In fact, in many cases, it's higher than the purchase cost itself (even with the
efficiencies delivered by an ERP application). The reason for this is that the total cost-to-transact
includes many associated activities such as processing, administration, and bank fees, to name just
three. In a typical business, 90% of purchases are low value; they represent less than 10% of total
company purchase spend. But because the cost of each transaction is normally much the same
regardless of the purchase price, in reality, these low value purchases cost far more than the big
purchases. Consequently, the majority of available company resources (e.g. employee time, effort,