There is pressure on buyers to obtain best value for money; this can be
achieved by paying less for goods and services without a reduction in
quality or by making savings in time and effort.
There are two types of savings:
You make cashable savings when you negotiate price reductions or special
deals such as obtaining a greater quantity of goods without an increase in
price. A common example of this is “2 for 1” offers. You can calculate the
saving quite easily – it is the price you should have paid minus the price
you actually paid.
Sometimes you will negotiate “free” consumables, or an extended
warranty at the same price as a standard warranty when buying
equipment. You may negotiate “free” training. The value of these “free”
offers can be calculated – what would have been the price of the
consumables, extended warranty or training? However, do you really need
the consumables, extended warranty or training? Would you have
purchased them even if they weren’t “free”? If you wouldn’t, then see
instead if you can negotiate a price reduction on the goods you are
Non-cashable savings are also known as efficiency savings. Organisations
can improve systems so that there is a saving in time - not all savings are
the result of actually paying a lower price for goods or services. These
non-cashable savings can be difficult to quantify. For example:
Changing from a paper-based ordering system to an on-line ordering
system can mean processing time is reduced and more orders may be
placed in a given time.
Streamlining invoicing and payment systems also reduces processing
time. This can free staff to concentrate on other duties.
Non- cashable savings may be calculated as follows:
OGC Guidance is to claim £28 for each additional procurement card
transaction during the current year, using 2004/5 as a baseline. This
means that if you placed 100 orders using purchase cards in 2004 and
200 in 2005/6 then the non- cashable savings you could claim would be
100 x £28 = £2,800.
Research from organisations that have adopted e-procurement processes
have estimated that the process efficiency costs are in the region of £44
per transaction compared to a traditional paper-based purchase-to-pay
process, and £16 compared to on-line ordering and paying with a
Again using 2004/5 as a baseline – if you placed 100 orders using a paper
based system and switched to on-line ordering in 2005/6 and placed 100
orders on-line – the non-cashable savings would be 100 x £44 = £4,400.
If the switch was from purchase card orders to on-line ordering then the
non-cashable savings would be 100 x £16 = £1,600.
You can use the form given in the workbook to record your savings or you
can design your own. Whichever form you use – please publicise your
savings; you deserve the credit.
(Return to Index)
Savings (K1, K24)
Q: Explain the difference between Cashable and Non-Cashable savings.
Exercise: Complete a savings report giving details of the savings you have
made for your organisation. You may use the format given below or one
that is already in use within your organisation
Date: Order Goods/ Cashable Comments
No/Ref service Savings
Date: Order Goods/ Non- Comments
No/Ref service cashable