dark grid

Two factors that feed dark purchasing in your company

May 31, 2018
Dark purchasing doesn't just happen. There are things within your organization that allow dark purchasing to flourish.

The term “dark purchasing” has been coined to describe the shadowy area where items are purchased outside of standardized processes and can’t be easily tracked to capital outlay or material inventory. I talked about this in a previous blog post.

Dark purchasing doesn't just happen. There are things within your organization that allow dark purchasing to flourish. Two big factors are non-standardized processes and human error. Allowing indirect spend to be handled in a decentralized manner or by functional areas of your business makes it easier for rogue spend — purchases from unauthorized vendors or those outside of dollar parameters — to happen on a regular basis.

Indirect spend is likely to happen in the dark because it typically involves 80% of all suppliers even though it may only account for 20% of all purchases. Indirect purchases tend to be in smaller amounts so may go unnoticed, especially since they happen across multiple departments. No one person in the organization may ever see the full scope of the indirect spend.

A report from Accenture found that every procurement dollar in indirect spend that is brought under management control can represent a savings of as much as 10% to 20%. That is a compelling reason to develop standardized processes and procedures for indirect spend as you have for your direct spend items.

Human error is the other big factor that makes dark purchasing a reality. This is especially true if you are still using manual processes in your accounts payable department. All too often, companies fail to automate accounts payable and don't take advantage of the benefits automation brings to payables which include making it an integral part of the procure-to-pay process.

According to the Institute of Finance and Management, only 13% of companies responding to a survey had “straight through processes with virtually no human intervention.” It is easy to see how human error can occur when you realize that email, fax, phone and “free-form documents” are still being used in the accounts payables process. 

When there is no consistent way to track invoices and payments, they fall into the area of dark purchasing. You need a system in place that supports both your direct purchases and your indirect ones. This helps optimize cash flow and gives you a more accurate picture of what you are actually spending.

Having the proper procedures in place for all of your purchases — both direct and indirect — and automating your payable process will keep all of your spend in the light of day.

About the Author

Matt Clark | Chief Operating Officer

Matt Clark is the Chief Operating Officer for Corcentric, a procurement and finance company that helps companies reduce expenses and improve working capital by optimizing how they purchase, pay, and get paid. He is responsible for setting and steering Corcentric’s strategic vision, which has experienced record growth since its founding. Matt has been with the company since 2004.

Matt is an adviser and guest lecturer for the University of Maryland’s Entrepreneurship and Innovation Program, and is an active member of Vistage Chief Executive Group, which provides peer-to-peer mentoring for DC area business leaders. He earned his bachelor’s degree from the University of Maryland.

Voice your opinion!

To join the conversation, and become an exclusive member of FleetOwner, create an account today!

Sponsored Recommendations

Leveraging telematics to get the most from insurance

Fleet owners are quickly adopting telematics as part of their risk mitigation strategy. Here’s why.

Reliable EV Charging Solution for Last-Mile Delivery Fleets

Selecting the right EV charging infrastructure and the right partner to best solve your needs are critical. Learn which solution PepsiCo is choosing to power their fleet and help...

Overcoming Common Roadblocks Associated with Fleet Electrification at Scale

Fleets in the United States, are increasingly transitioning from internal combustion engine vehicles to electric vehicles. While this shift presents challenges, there are strategies...

Report: The 2024 State of Heavy-Duty Repair

From capitalizing on the latest revenue trends to implementing strategic financial planning—this report serves as a roadmap for navigating the challenges and opportunities of ...