Purchasing procedures and spending limits in a small business

A large company has a purchasing department. In a small business everybody orders a bit: the engineer orders parts, the office manager coffee and office chairs, the project lead the hire of a cherry picker. It’s efficient, until it goes wrong. An order that had already been placed, a supplier far more expensive than the usual one, a contract that renews automatically.

A purchasing procedure doesn’t have to be complicated. A handful of clear agreements does most of the work.

What a purchasing procedure covers

A good procedure answers four questions:

1. Who can order? Everyone, or only certain roles?
2. Up to which amount? What can someone decide alone, and when does someone else need to look?
3. From whom? Are there preferred suppliers or framework contracts?
4. How is it recorded? So the invoice can be matched to an order later.

Choosing spending limits

The most common set-up is a ladder of limits:

These amounts are just an example; choose what fits your size and margins. More important than the exact figure:

• Apply it per order, not per line. Otherwise one big order is easy to split.
• Watch out for split orders. Three €2,400 orders from the same supplier on one day are, in practice, one €7,200 order. Agree that this isn’t the idea.
• Think about recurring costs. A €300-a-month subscription is €3,600 a year. Apply the limit to the total contract value.

Preferred suppliers and framework contracts

Many companies have agreements with preferred suppliers: a fixed discount, a service contract, better delivery times. Those agreements only pay off if people actually order there.

Make a short list: this supplier for office supplies, that one for IT hardware, another for tools. Make sure everyone who orders knows the list, above all at the moment they order. Someone who needs something quickly opens a search engine, not the purchasing policy.

New suppliers

A new supplier calls for a few checks, even in a small company:

• Does the company exist? Check its registration in the company register.
• Is the VAT number valid?
• Is the bank account in the company’s name?
• Are the delivery and payment terms acceptable?

Agree who may create a new supplier in the accounts, and preferably have a second person check.

From order to payment

In accounting, the final check is called a three-way match: the order, the receipt of goods and the invoice must agree. A small company can keep this simple: make sure each invoice shows who placed the order and that it was delivered. An order or project number in the notes field already helps a lot.

Keeping it workable

A procedure that asks too much gets bypassed. A few tips:

• Keep it short. One page, preferably less.
• Leave small orders alone. Control costs time; spend it where it matters.
• Make approval fast. An approval that takes a day leads to orders without approval.
• Put the agreement where ordering happens. A spending limit that appears in the online shop at the moment of ordering is followed far better than a limit in a document.

In short

• Decide who can order, up to which amount, and from whom.
• Use a few clear limits per order, and watch for split orders and recurring costs.
• Make preferred suppliers known at the moment of ordering.
• Check new suppliers, preferably with four eyes.
• Keep it short and make approval quick.

ClickCheck brings these agreements into the online shop itself: a spending limit with approval, or a note that you normally buy this from another supplier. Read more about purchasing agreements with ClickCheck.