What is dark purchasing, and how to control it?

Apr 05, 2024

Advancements made in the field of business technology prove to be the best solution to operate business functions successfully.

The procurement department also benefits a lot from automation as it helps to boost the enterprise and take it to international levels.

However, speaking purely about expenses, a business loses millions of dollars every year just because it can’t track all the company expenses properly.

Without an effective accountability and tracking system, numerous expenses ranging from small office supplies to expensive travel tickets can go unaccounted for.

That money that was spent recklessly could have been spent more productively. This is where the concept of Dark Purchasing can be understood. 

What is dark purchasing?

The inability of a company to track and record where all its expenditures are going is called Dark Purchasing.

Not being able to tail all company expenses and being in the dark about a portion of the purchases from the company funds can prove to be extremely damaging for the procurement process.

Expenses that are not made through standardized processes or cannot be easily tracked are the ones that come under Dark Purchasing. Furthermore, Dark Purchasing is not just a one-time thing or a mistake. It doesn’t just casually happen.

There are various things that a business tends to ignore or just let go of, which ultimately cause damage. There are certain things that support Dark Purchasing: 

• Inability to track expenses because of lack of visibility 

• Unclear and vague procurement instructions and plans 

• Not staying on track with the purchasing logs

Many times, different departments purchase the same product or service but from different vendors.

Hence, the benefits that could have been enjoyed if the system of procurement and expense undertaking strategies and rules were clearly set to go down the drain.

Why aren’t the benefits received? This is because while making deals with vendors, the number of purchases plates a great role. More quantity, more possibilities to get discounts or rewards. 

Along with this, another problem that leads to Dark Purchasing is the lack of a standard method of tracking payments.

Many businesses do not consider purchasing as an important aspect from the analytical point of view; however, if the money spent on purchasing is tightly kept under the radar, no expense would go unnoticed.

Ultimately, Dark Purchasing can be avoided. Your business can save almost 25% in revenue by implementing simple and strict strategies for procurement processes and expense tracking.

Reasons why your business is still exposed to dark purchasing challenges

1. Decentralized spending process

A decentralized spending process, where the departments of the business get me to make a purchasing decision, can be a tricky one.

If the higher authorities do not keep an eye on the purchases being made, a lot of time, departments and employees end up buying the same products but from different vendors.

This way, your business ends up losing large purchase discounts and offers. There is no clarity of where the company funds are being spent and on what. 

2. Lack of spending policies = lack of control over spends

Dark Purchasing also occurs when the company does not have strict and clearly documented spending policies. Spending policies include what the employees are allowed to do with the company and to what extent.

So, without any expense policies and spending controls, the employees of the company would not have set limits. Again, this becomes a loop of no control over expenses.

Go through our article - Factors to consider when creating a company spending policy to get a complete overview on why spend policies are important and what should be added to your spend policy.

3. Dependency on manual systems

Manual processes of expense tracking and management are highly ineffective and messy. Storing all spending receipts, checking and reconciling all payments, and the details of the expenses is a long process when done manually.

So, inaccurate data is bound to be an aftereffect of the processing. This gives way to Dark Purchasing. 

4. No standard payment processing system

Dark Purchasing is also fueled by the lack of a proper and company-wide standardized payment process.

If, in your business, everyone uses different channels and methods to make payments; it becomes difficult for the finance team to process and reconcile all the payments.

A systematized payment process ensures that all payments are made through the same channel and go through the same steps to complete transactions; this way, no expense can go unnoticed. 

How do you overcome the risks of dark purchases for your company?

1. Let Automation take over

All the problems start from disorganization, mainly caused by manual processing and functioning. Everything boils down to tracking all purchases and company spending.

Getting an automation system to handle the process right from creating vendor accounts to setting payment cycles, getting expense approvals, or transferring money.

Automation will not only help in saving time, but it will also improve efficiency and accuracy. This is because automation systems take over all the tedious, repetitive, and heavy data processing tasks and complete them within minutes. 

Switch to automated expense reporting and approval process to prevent incidents of dark purchasing.

2. Switch to an all-in-spend management platform!

If you do decide to get automation software for your business, why just get an expense tracker or planner? Get an all-in-one to-spend management platform.

These platforms provide various features which can help a business take care of each of its financial aspects.

Look for software that offers corporate cards, both unlimited virtual cards and physical cards, reimbursement and approval workflow, real-time expense and purchase tracking, direct accounting integration, multi-currency wallets, and analytical data presentation.

All these facilities are meant to help businesses have more smart financial control and increase profits. 

3. Work with department budgets & approval workflows!

Dark Purchasing also happens because a business fails to predefine and set budgets for departments and projects.

Setting a budget is not just about allotting a certain amount; it is about precisely dividing how much money can be spent on what items, products, or types of requirements.

Along with this, making and implementing approval workflows is also important. You cannot just give one person or department managers the whole right to make purchase decisions; there needs to be a flow of authorities approving expenses. 

4. Connect purchasing activities with a smart payment system

Where does the flaw occur which gives rise to Dark Purchasing? Inability to track all expenses.

Hence, not only should your procurement process include automation for recording all information, but it should also provide or you must connect purchasing with a smart payment system.

A payment system concerns the particular steps that need to be followed to initiate a payment, get it approved, and complete the transfer.

When all the expenses are made through the same channel and by following the set direction, expense tracking turns out to be a piece of cake. 

Gain the control necessary to spend your business expenses smartly

Expense control is all about laying down strict rules and standardized procedures throughout the organization.

In order to accurately record and process all expenses uniformly, an automation system that provides all the necessary features for financial controls is necessary.

There are certain operations and processes which would be better done by an automation system, tasks such as storing receipts and expense proofs, processing invoices, approval workflows, tracking expenses, etc. 

Now, let us save you the trouble of looking around and introduce you to Volopay. It is an all-in-one spend management platform offering features to help businesses easily control and manage all financial aspects.

Volopay can help in automating all major data-heavy and time-consuming processes like invoice capturing, information sorting, database creation, accounting entries, reconciliation, payment approvals, etc.

This is done by features like auto-character recognition, direct accounting integration, auto-expense categorization, real-time tracking of payments, approval workflows, budget controls and enforcement tools, virtual cards, individual vendor accounts, and multi-currency digital wallets. 

To be the new smart business in this modern world, you have to upgrade your company operations to maintain proficiency and productivity constantly.

It is because of the lack of proper systems and set rules that enterprises have to face problems like Dark Purchasing because Dark Purchasing cannot just happen.

There are various loopholes helping it flourish, which means that these holes need to be identified, and measures to fill these gaps need to be adopted.

It is not that you, as a business owner, do not already know this. Still, even after having an understanding of the importance of strict and strategic procedures, many companies fail to eradicate issues like Dark Purchasing. 

Discover how we can help meet your expense managment needs