3 Tips to Eliminating Dark Purchases

Do you have control of, or even a handle on what your company spends? If you’re using spreadsheets and capturing purchases manually, then probably not. Even if you’re using software but not fully automated, there is going to be a discrepancy between what you think your company is spending and what is actually spent. That’s when off-contract spending, or ‘dark purchasing’ creeps in. It’s a shadowy area of procurement.

Dark purchasing describes the purchases made outside of standardized, defined procurement processes that can’t easily be tracked. Think rogue, maverick or uncontrolled spending.

You might be asking yourself how this even happens, however, there are common factors at play that allow it.  But you really don’t need to be afraid of the dark, you can turn on a light with these tips to keep your spend in full view.

Standardize and centralize processes
Don’t allow spend to be handled in a decentralized manner. This makes rogue spending, purchases from unauthorized vendors or those outside of dollar parameters  more difficult. For example, if each office, division or department has ultimate purchasing power to order from any vendor or for any dollar amount at its own discretion without seeking approval, you don’t have visibility or insight into what is happening. You are essentially in the dark.

Communicate or enforce the standardized processes. Often times employees don’t know the best way to make a purchase or they are simply unaware of the policies and procedures in place. It is important to educate employees about your procurement process. This eliminates uncertainties and gives you more control and visibility into spending habits.  

Manage indirect spend or manage smaller dollar amount thresholds differently
Indirect spend typically involves 80% of your suppliers even though it may only account for a fraction of all purchases. Therefore, it is important to get a handle on your indirect spend. Indirect purchases may be of a smaller dollar threshold, and span multiple departments meaning specific guidelines should be included in your procurement policies need to help manage the smaller spending amounts.

You can adhere to policy without making it difficult. For instance, small indirect purchases might only have one approver (a manager) and maybe it's not necessary to create a purchase order if it is from an approved vendor. However, there is a process in place to ensure there are specific steps so that it is visible.

Minimize human error
Manual processes in Accounts Payable (AP) tend to lead to data entry errors. Humans are human after all. By automating AP you have increased visibility of the invoices being received and if dark purchasing is still occurring. And with any automated solution, an invoice process should be in place to help with your overall procurement policies and procedures.  

Take action
Ideal procurement is having a solution in place to support a consistent way to track invoices for all purchases, to help optimize cash flow and to give you a more accurate picture of what you are actually spending.

Having the proper procedures in place for all purchases should enable you to see the light.