Maverick spend could be behind 80% of your invoices. Here’s how to stop it.
How would you feel if you discovered that mavericks in your company could be inflating your vendor debts by up to 80% unnecessarily? You’d probably be eager to stop it in its tracks. Maverick spend is a plague on the bottom line and a challenge for even the best legal teams. Fortunately, legal ops solutions can help you regain control. Learn about maverick spend and how to control it so you can keep your costs low and profits high.
Types of maverick spend and how to recognize them in your team
Maverick spend is uncontrolled and unpredicted spending that only comes to light when the invoice reaches accounts payable. Identifying the people responsible for this spending isn’t often straightforward.
There are three main categories of maverick spend – and the first step to identifying maverick spenders on your team is understanding which type of maverick spend is at play.
Uncontrolled and unknown maverick spend
Uncontrolled and unknown maverick spend refers to an invoice from an unknown vendor. There’s no previous history of working with them, and there’s no contract or Alternative Fee Arrangement (AFA) to back up their services.
For example, you could get an invoice from a law firm you’ve never heard of that bills five hours to an unauthorized UTBMS code. Your billing team now has to spend several hours looking for communications (that may not even exist) to track any mention of these billable hours.
Semi-controlled and semi-known maverick spend
Semi-controlled and semi-known maverick spend is when a vendor you might have worked with before sends an incomplete invoice. The invoice has a contract backing it; however, the contract might not be complete, or the invoice might lack clarity as to what was ordered and if it was authorized. For example, a law firm sends an invoice for work completed, but the invoice isn’t itemized and doesn’t indicate who authorized the order.
Semi-controlled and known maverick spend
Semi-controlled and known spending generally comes from an approved vendor and a contract that is known. However, the contract lacks important details. Semi-controlled or known spend can also happen when employees either don’t have standard operating procedures (SOPs) to follow or do not adhere to the SOP that’s in place. If there aren’t consequences for working outside of SOPs, nothing prevents employees from hiring a vendor they prefer instead of an approved one.
Maverick spenders aren’t maliciously spending your team’s money. They’re buying what they think they need to get their job done—without following the proper legal billing procedure. Despite their good intentions, there are severe consequences. Here’s why it’s important to act quickly once you determine you have a maverick spender.
Impacts of unchecked maverick spend
It’s not uncommon for maverick spend to account for 80% of all invoices. More specifically, it looks like:
- Decreased sourcing leverage: Your team individually purchases unapproved printer paper rather than ordering together for lower-cost bulk pricing.
- Increased purchasing costs: Your team contracts their preferred senior associate rather than the approved paralegal who could have completed the job, leading to unexpected costs and missed discounts.
- Increased transaction fees: Your team members buy something when not authorized, creating added transaction fees on top of the above costs.
- Double billing: Accounts payable misses when they’re double-billed for travel time and a meeting during the same time period due to lack of visibility in vendor management.
- Long vendor lists: Your team is adding vendors not already on the list, making vendor management more time-consuming.
Imagine your team member contracts a top-level expert you’ve never heard of without your permission or knowledge. Because your team has never worked with them, they have no set contract and no vetting process. The un-contracted expert might charge more than the one you’ve used in the past, or the quality of work might not be up to par. And to top it all off, your vendor list just got more crowded. Now, let’s say that the expert wasn’t even needed. You now have increased purchase costs and wasted transaction fees.
How to eliminate maverick spend
Start mitigating maverick spend by implementing the following policies and changes.
Conduct a spend analysis
A spend analysis is when your finance team collects and categorizes all financial data to determine where costs can be cut. Here are some tips for facilitating a smooth spend analysis and sniff out maverick spend.
- Look at all spending. Track the past few years to see if spending has increased unnecessarily. This is simpler if you have an e-Billing solution.
- Use UTBMS codes. Categorize everything within the correct codes and include whether the invoice was approved or even needed.
- Track origination. Document the approving team member and ordering team member for each invoice.
- Track unapproved rates. If you see a high unapproved purchase rate, look at which member of your legal ops team has been placing these orders most often.
Create spend visibility
Spend visibility means tracking how your budget is used and being able to verify how money moves through your business. You can promote spend visibility by having open and honest monthly conversations about what’s going on in accounts payable. Creating this type of culture enables you and your team members to make better calls about getting new office supplies or sending work to an outside firm.
Show your employees how maverick spend impacts the company by adding a “spend importance and impact” section to the employee handbook. For example, if your company pledges to allocate 10% of the legal spend to outside law firms that meet specific diversity, equity, and inclusion (DEI) requirements, contracting other vendors could throw off that percentage.
Be sure to explain how maverick spend impacts your team as well. Employees are more likely to care if it negatively impacts them, and not just the company. Make an explicit connection between maverick spend and end-of-year bonuses. Show them that unknown vendors might not offer the best price or quality, making their job harder.
Implement systematic approval controls before purchases
Create a set-in-stone SOP that controls how people create orders. This guideline should be detailed but easy to use, with information on how employees can get anything they need. Consider creating separate guidelines for micro-purchases like toner or new pens. Making these items even easier to obtain gives the whole system a higher chance of succeeding.
Think about using your current chain of command as a template for your approval system: Associates must ask their supervisor. Supervisors can request new materials, supplies, or software from their managers. The managers look at the budget and approve or deny—possibly after talking with accounts payable.
Start proactive vendor management
Vendor management is a process that involves sourcing, researching, negotiating, and managing contracts from those pre-selected vendors. Putting one person or a specific team in charge of this can significantly reduce issues like long vendor lists. In addition, think about implementing a vendor scorecard to ensure that you’re only working with high-quality vendors.
Follow this process for vendor management:
- Set priorities. Before sorting and choosing vendors, think about what is most important to your business, whether that’s looking for high-quality vendors, a mix of high-quality and low-cost vendors, or vendors that offer volume discounts.
- Do research. Based on your priorities, find and select the best vendors for your team and their needs.
- Create contracts. After selection, create detailed and specific contracts with each vendor that outline the pricing and obligations expected from each party.
- Monitor regularly. After contracts are created, ensure that all contracts are being followed and that there are no unapproved vendors.
- Reset priorities. At the end of each month or quarter, make sure all approved vendors remain in good standing or find new ones to replace them.
Implement automated procurement
Electronic procurement, or eProcurement, is the digital purchase of supplies and services. Automating your supply procurement helps predict and regulate costs. It enables you to enhance spend visibility and reduce your vendor management and spend approval team’s workload. To start automated eProcurement, think about automating the purchase of regular items like toner and paper as well as the payment of approved subscriptions and services to save time for approval of non regular and large-ticket items.
Manage maverick spend with SimpleLegal
Stopping maverick spend will increase net savings and reduce wasted money. However, finding the mavericks within your team and implementing processes to control maverick spend won’t happen overnight. It’s a challenge that takes time, planning, and ongoing management.
SimpleLegal helps you control maverick spend by managing all your legal operations, matters, spend, and vendors. Sign up for a demo to learn about how our platform can help you avoid maverick spend.