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Updated: Sep 10, 2022

Tips for assessing and analyzing your vendor spend to maximize efficiency.

In the average company, 60% of contractor spending goes unaccounted for in financial planning, forecasting, and budgeting. Your freelancer/vendor spending is likely much more than think it is – both in aggregate and as a percentage of your total spend – as this type of spending often has fewer controls, processes, and systems in place than your payroll and marketing spend. But investing in using freelancers and vendors is critical for companies to compete and leverage the best talent available. So how can you effectively manage this spending?

Unmanaged Vendor Spend

Expenditures on engaging freelancers, independent consultants, and other 1099 workers are often unmanaged. These kinds of expenses frequently fall outside of a company’s usual procurement processes and systems. And even with approval systems in place, people may slip these expenses in by keeping under approval thresholds – these costs can quickly add up. Without full visibility, processes, and systems, these expenses can potentially get of control, resulting in unpleasant surprises.

How to Assess Vendor Spend

The best way to review and assess your vendor spend is to start by calculating the percentage of spending by category and by the vendor. For current vendors, each department head should be able to justify the spending, just as they would for headcount. Your department leaders should do a comparative analysis of their vendors and tie it to the relative business impact and benefits of each vendor.

Streamline Vendor Management Costs

Once you’ve assessed your vendors, think about the administrative overhead to engage and manage each vendor. Consider the impact and time involved in all departments, including that of your controller, accounts payable team, legal team, department head, and others. Look at your processes and systems and find ways to save time, reduce errors, and minimize compliance risks. With traditional paper-based systems, as the number of vendors increases, so does the work involved in collecting and managing tax documents and payments.

Many smaller companies manage their freelancers and contractors manually. For example, each team might have its own spreadsheet for keeping track of freelancer hours and payments. When Fly by Jing switched from manual management to using Liquid to manage the company’s contractors and related legal documents, invoices, and payments all in one place, the company started saving dozens of hours every month. Fully automating invoice processing for your freelancers and contractors can materially reduce costs and errors. 

Think about all the administrative, financial, and vendor management tasks involved – each will provide an opportunity to streamline, resulting in fewer admin hours and errors.

Take Vendor Management to the Next Level

Now that you’ve fully assessed and optimized your vendor spending, processes, and systems, you are ready to take it to the next level. Think about the fully loaded cost of one employee. That’s the amount that you have to spend on the next employee or vendor. If your payroll and vendor processing costs are the same & equally streamlined, then you can fully assess the potential impact and benefit for your business from triggering either option as you scale and grow the company. You are ensuring your company can cost-effectively, flexibly, and smartly access the best resources and talent pool.

Liquid is an all-in-one vendor management system that makes managing 1099 workers and vendors easy and helps you comply with the associated regulations. Plus, by streamlining all the associated administrative processes for all your teams, Liquid helps save you time and money.


Note, we are not providing legal, tax, or payroll advice. Please consult your legal, tax, and payroll professionals. These are simply to serve as guidelines based on our own experiences.


3 min read

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