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Black Friday: Three business lessons for UK SMEs

Black Friday weekend, the biggest retail weekend of the year, has now extended into a full week of seemingly unbeatable discounts on thousands of products. As we, consumers, exit the furore of that week and ready ourselves to pound the high streets looking for Christmas presents – we’ve taken a moment to catch our breath, consider those bargains for which we will never find any use, and reflect on what purchasing lessons SME’s can learn from Black Friday.

The sheer scale of the week is reflected in the weekly revenue figures from John Lewis who reported record figures of almost £200m. Visa reported that UK shoppers spent £2bn on their Visa cards on Black Friday alone! While in the USA Amazon was believed to have accounted for nearly one third of the purchases. To be successful both the traditional and e-commerce retailers rely heavily on their supply chain and the transport and logistics companies who ensure our purchases arrive to us safely. This success is underpinned by significant investment in finance, logistics and document capture solutions that ensure everything is tracked, invoiced and shipped smoothly.

Some of the major purchasing challenges faced by many SME’s include the control of, and visibility over spending, as well as the amount of time and human resources consumed by the process of ordering, receiving and paying for goods and services. Maintaining a balance between control, visibility, and efficiency is a critical success factor in the purchasing process.

Below we identify three business lessons arising from taking the consumers view of Black Friday and apply it to the purchase and receipt of goods and services by SME’s.

Lesson 1: Control

Black Friday is all about searching around for that great bargain and, in some cases, purchasing items without a clear view of how they will be used in the future. Such well- meaning off plan expenditure can also occur in SME’s particularly where there are no formal purchasing systems and/or budgetary controls.

SME’s generally gain a lot of credibility with stakeholders, suppliers, customers, employees, bankers and shareholders if they are seen to be in control of their expenditure. A purchasing system requiring staff to make requests that are approved by budget holders before a purchase commitment is made will significantly improve control over business expenditure.

Lesson 2: Visibility

We often read about people who have been surprised by their level of credit card debt when the credit card bill turns up a month or so after they have made their purchases. No doubt some of the £2bn spent on Visa cards on Black Friday will become part of a nasty surprise in January 2017 when it needs to be paid off.

In the business world we also hear of a sudden cash flow crisis impacting the ability of a company to trade. This occurs for similar reasons to the personal debt issues above. In the absence of a system that recognises financial commitments when they are made, records the receipt of goods and services when they are received and allows the efficient processing of supplier invoices, the arrival of a customer statement demanding immediate payment of overdue invoices can be a nasty surprise. Seasonal events like Black Friday, which cause a significant rise in expenditure, can make this a very serious issue for a business if there is a lack of visibility over expenditure.

Purchasing systems that allow early visibility of commitments and future cash flows spare such surprises, and so either action can be taken to stop the problem arising or plans can be put in place to deal with the coming cash flow outflow.

Lesson 3: Efficiency

Black Friday is a perfect example of how it is easy as an individual to be efficient spending money in a world where credit is easily available. Lesson 1 and 2 above have identified that there can be consequences for individuals if there is a lack of control and visibility over their spending.

SME’s are generally aware of these risks and often spend a lot of time and manual effort implementing controls to counter them. These efforts can often lead to counterproductive results and a sub optimal use of resources.

Purchasing in business is generally more complex than transactions carried out by individuals involving many more players in the process and many human touchpoints elongating the process between request, commitment and payment.

Research conducted on behalf of Invu and released earlier in 2016 reported that from a survey of over 200 UK financial decision makers, almost a quarter (23%) admitted that their purchase order processing (POP) system makes it difficult to purchase on behalf of the business with 9% admitting they actively work around POP to get things done.

Automated purchase order processing systems that encourage employee engagement can be hugely productive for SME’s. Self-service requisitioning and purchasing with controls over requisition approval, that allow budget holders to be responsible for, and in control of, their budgets improve control and visibility for the company as well as being efficient. These systems bring the shopping experience at work closer to the individual experience yet allowing the corporate controls over budgets and transaction approval enabling staff to optimize spending performance in accordance with company plans.

You don’t have to be John Lewis

Love it or loathe it, it seems that the adoption of Black Friday and Cyber Monday in the UK is here to stay for the foreseeable future. You might not agree with the shopping habit that this weekend brings, but you cannot deny the efficiency of the business processes which support it.

You don’t have to be a John Lewis or an Amazon to put in place systems that allow you to efficiently deal with the impact on your purchasing processes of significant seasonal swings in demand on your business. The adoption of an automated purchasing and accounts payable system can enable the typical medium sized business to absorb similar fluctuations in demand in their business.

This was posted in Bdaily's Members' News section by Ian Smith .