Let’s face it, procurement can be a time-consuming struggle. When you need new equipment or more budget for a project, the process of obtaining this can be difficult. This is why a clearly planned purchase approval process is important.
Purchase approvals form a vital part of procurement. Breaking down your purchase approval process into well-planed steps will make it a lot easier for you to get your spending and budget approved.
This guide will cover exactly what a purchase approval process is, how it works, why it's important, and what the steps involved in the process are.
What is Purchase Approval Process?
Purchase approval, also known as a purchase approval workflow or purchase requisition, is the process of approving spend requests made by members of your team.
If your organization needs to spend money on anything, you will first need to go through a formalized purchase approval process. This could apply to purchasing new equipment, making new hires, creating accounts with new vendors, arranging a service, or any other expense you need to make.
Basically, a purchase order approval workflow makes sure that you don’t spend money without having it carefully planned into your budget. All spend requests need to be approved based on specific approval rules. This makes purchasing a much more streamlined process.
Why is Purchase Approval Important?
A carefully planned purchase approval flow is designed to make sure your company doesn’t overspend on anything. By putting in a purchasing request, keeping all of your department expenses within budget becomes a lot easier.
Purchase approvals are also created through a spend management system. Using a system like this makes approval routing a lot more efficient. You save time putting in each procurement request, speeding up and streamlining the procurement process.
This can all be done through a centralized platform, instead of having to make separate purchase requests through lengthy email threads.
The purchase approval process helps you understand what your spending and budget will look like, thanks to advance orders. This insight gives you more room to negotiate effectively with suppliers to try to get the best possible deal.
Purchase approval routing through a spend management system also makes it a lot easier to keep track of every expense. If you need to understand how your budget was spent, this system should reveal every single cent.
Overall, using purchase approval helps you streamline procurement operations, gain a tighter grip over cash flow, and gain better visibility into your spending. This also leaves a clear and easily accessibly spending trail, which makes audits a lot more convenient.
How Does it Work?
A purchase order approval process offers an easy way for managing the entire procurement system. Any expense request you need for your business needs to be put into a purchase order. The purchase order is submitted for approval. Once this has been approved by management, you can go ahead with procurement.
This PO approval process needs to follow a strict set of criteria. This includes passing each purchase order through a specific set of actions before it can be approved for spending. This process can be automated by using the right PO process and approval matrix.
This means you can set up predetermined workflows for spending. These can be based on factors like the spending amount, the project, the department, or the location. Once the purchase order is made, it enters this workflow for approval. This makes it effortless to follow all of your spending policies.
Purchase Approval Process: 5 Steps
A purchase approval process generally follows five steps. These are;
- Request for spending: First, the request for spending is made. This is also known as the requisition, purchase order, or request for purchase. This includes saying what you want to procure, or spend money on, and what your intention for this spend is.
- Approval routing: Now the request for spend is sent into approval routing or the approval chain. This is when all relevant stakeholders review the request for spend. This process needs to offer complete transparency as to how the spend request is reviewed.
- Permissions: The approval process might vary depending on the size of spending. For example, small requests will require less permission than large budget requests. The request for spend is placed at an appropriate permission level.
- Timeframe: Each request needs to have a clear timeframe to make the procurement process run more smoothly.
- Documentation: Each step of the spend approval process is clearly documented. This makes for easy and accessible audits.
A well-managed purchase approval process can save a great deal of time and energy during any procurement task. This is especially true if you use an automated procurement system to help you create and manage approval workflows.
Get it right, and purchase approvals can make procurement a far easier, less stressful, and more efficient process.