What is Direct Spend?
Direct spend is any type of billing or invoicing with your small and/or diverse supplier that you can trace back to your customer.
- These are purchases that you make that are for a specific customer and directly help your customer’s business. Therefore, your customer will receive 100% credit for their spend.
- For example:
- Company A asks you to report your small and/or diverse spend, and you are a packaging supplier.
- Company A purchases its packaging materials from you, and you purchase cardboard from Company C, a small supplier.
- That spend is directly impacting the business you provide to Company A, and you would report that as direct spend.
Examples include raw materials, subcontracted manufacturing services, components, hardware, etc.
What is Indirect Spend?
Indirect spend is spend with small and/or diverse suppliers; however, it is not directly tied to the customer asking you to report.
- This is spend that supports your company’s business operations.
- For example:
- You hire a woman-owned accounting firm. This service allows you to operate your business, but it is not tied to a specific customer.
- Let’s say you also contract with a woman-owned office supply company and a woman-owned software provider.
- The sum of the spend with these women-owned businesses will be recorded under that category, and a calculated % of this spend will be allocated to your Customer.
- Indirect spend may be collected as either verified or unverified spend, depending on the Customer’s configuration. I’ll share more about unverified spend in a moment, and we will go over how to enter indirect spend.
For example, if your total sales in a quarter are $1,000,000, your sales to your customer are $200,000, 20% ($200,000/$1,000,000) of your diversity spend will be allocated to your customer.