Most finance teams find out they have gone over budget when the invoice arrives. That is obviously the worst possible moment to find out, because the money was committed some time earlier by someone who did not have visibility over the budget when they made the decision.
This is the single biggest reason a budget stops being useful during the year. Not because the numbers were wrong when they were set, but because the reporting runs behind the spending, and there is no point in the process where anyone gets told to stop.
It helps to lay out what actually happens when someone in the business buys something. A rough version of the sequence:
Five gaps account for most of it.
Nothing records the commitment when it is made. If there is no purchase order, meaning a document that captures what has been ordered and at what price before the order is placed, then the first written record of the spend is the supplier's invoice.
Suppliers invoice on their own schedule. Some invoice on delivery. Some invoice at the end of their month. Some invoice when they remember. You have no control over this and it can add weeks.
Coding waits on a person. An invoice arrives without a clear owner or cost centre, so someone has to ask around before it can be recorded anywhere useful.
Approval waits on a person. The invoice needs approving before it is posted, and the approver is busy, travelling, or on leave.
Reporting runs on a cycle. Even once an invoice is fully processed, the budget report that shows it is produced at a set interval, so there is a further wait before the budget holder ever sees the number.
Individually each one is a few days. Together they mean a budget holder can be looking at a report that reflects a fraction of what they have actually committed.
You cannot act on the information. By the time the overspend is visible, the goods have been delivered and the contract is signed. Finance can record the problem and report the problem, but the decision that caused it is already behind them.
Budget holders stop trusting the report. If a department head knows the report understates their spend, they will keep their own spreadsheet alongside it. Now there are two sets of numbers in the business and no agreement on which is right.
One department's overspend eats another's room to spend. Money committed but not yet recorded is invisible at company level too. A second department can be given approval for something the business can no longer afford.
It all surfaces at once at the end of the year. Discovering a year's worth of small overspends in aggregate is much worse than catching them individually, because there is nothing left to trade off against.
The fix is to move the recording point from step eight to step two, by capturing and approving the spend before the order reaches the supplier rather than after the invoice arrives.
In practice that means a purchase order, raised and approved by the person with authority over that budget, before anything is ordered. The amount then sits against the budget line as committed spend from the moment the decision is made.
That gives you two figures on every budget line rather than one:
The number that matters for any decision about whether there is money left is the two added together. Actual spend on its own always flatters the position.
This only helps if a few conditions hold, and it is worth being honest about them.
The purchase order has to come before the order. If people raise purchase orders after the fact to satisfy finance, you have added admin and gained nothing.
The person raising it has to see the remaining budget while they raise it. Recording a commitment that nobody looks at until the next report just moves the delay somewhere else.
Approval limits have to match the budget. If someone can approve at a threshold their budget no longer supports, the record will be accurate and the spend will still be wrong.
Old commitments have to be closed off. Purchase orders that never turn into invoices, or come in cheaper than expected, will overstate committed spend until someone clears them. This needs to be a routine job rather than an annual clean-up.
A budget is a set of decisions about what the business will spend money on. Those decisions get made by people across the business, at the point they place an order. If your reporting only picks them up once the supplier has invoiced you, then for most of the year you are describing what already happened rather than managing what is about to.
Getting the commitment recorded at the point of decision is the difference between a budget you report on and a budget you can actually use.
Recording spend at the point someone commits it is what ApprovalMax is built to do.
A purchase request is raised in ApprovalMax and routed to whoever needs to approve it, based on the amount and the cost centre it belongs to. The approver can see how much of that budget has already been used before they make the decision, so the commitment gets made with the budget position in front of them.
Once it is approved, the purchase order goes to the supplier and the committed amount is recorded against the budget line at that point. When the supplier's invoice arrives, it is matched back to the purchase order, so the same spend does not get counted twice.
Two other things follow from that. Approval limits are set against budgets rather than fixed to job titles, so when next year's numbers change the thresholds can change with them. And because approvals are routed automatically, you can put cover in place before someone goes on leave instead of chasing them while they are away.
ApprovalMax works with Xero, QuickBooks Online and NetSuite, so the approved and matched figures reach your accounting system without anyone retyping them.