No, it’s not a straight-to-video 80s movie that you’d never heard of.
It can definitely be an unintended horror film for SMEs though if they don’t have a firm grip on it and know how to contain it.
Maverick spend is essentially any spend that cannot be predicted or controlled.
This can come in 3 varying levels of severity.
1. The worst form
In its worst form, this is spend which is completely unauthorised. Usually it’s only discovered when the invoice lands in accounts payable’s inbox. Nobody knows about the vendor, they’re not on the system and there isn’t a valid PO to book it against.
2. The not-quite-as-bad form
The next rung of maverick spend are the uncontrolled purchases. This is when an existing vendor has invoiced for something but there is no formal PO issued or approval process in place. There may be a quote or a frame contract which outlines the overall price and terms of the work being delivered or the goods being supplied, but the invoice cannot be verified in relation to the work which should have been carried out.
3. The most common form
The mildest form of maverick spend is the not-actively-managed vendors. These are vendors who are invoicing against valid purchase orders which can be matched against quotations they have issued to the stakeholder who has requisitioned the goods or service. However, there is no formally negotiated price list (or rate card if we’re talking about services). This spend is compliant according to most internal finance policies but is not controlled or well-managed when it comes to basic good supplier management practices.
Common areas of maverick spend
- Transportation (including customs & duties charges)
- Promotional materials
- Out-of-hours maintenance
- Events & catering
Where is maverick spend typically found?
Typically, completely uncontrolled spend occurs in startups, or in organisations experiencing rapid growth or a period of turmoil. Processes either don’t exist or are not being actively enforced. This results in no control over what is being spent. If budgets have been set, there is very little control a CFO or a procurement office can yield over these because a formal process either doesn’t exist or is routinely being bypassed.
The second form is more remnant of a companies who have some gaps in their internal controls and are not firing on all cylinders with their procurement-to-payment process. It may be a disconnect between corporate and local procurement. Or it could be an SME that has never really given thought to how vendors are managed and external purchases are controlled. Or perhaps a law or accountancy firm which has never really needed to have a grip on what they’re spending with suppliers because their external spend isn’t so high.
Finally, the third (and least drastic) maverick spend is with the not-actively-managed vendors. These are vendors who are invoicing against valid purchase orders which can be matched against quotations they have issued to the stakeholder who has requisitioned the goods or service. However, there is no formally negotiated price list (or rate card if we’re talking about services). This spend is compliant according to most internal finance policies. However, it is not controlled or well-managed when it comes to good supplier management practices.
So, while many enterprises don’t have any drastic non-compliance issues when it comes to spend management, most companies will fall somewhere between number 2 and 3, depending on the category of purchase and the location in question.
This is not good.
Total maverick spend should really just be a rounding error in any well-managed organisation.
What can be done about this?
Step 1: Plug the leaks
Step 2: Approved Vendor Lists
Step 3: A Fully Managed Supply Base
If your business is still struggling to implement step 1 or step 2, this is something you need to fix FAST. You’ll see the benefit immediately. Perhaps you see the value of achieving step 3 and are looking for some external help to get there? Wherever you are on your journey, why not schedule an intro call now to learn more about I can help you get on top of this and turn uncontrolled spend into savings?