Guidelines For Framing Company Purchasing Policies

company purchasing policy

The company purchasing policy is a set of general statements addressing the objectives of the purchasing function. The company purchasing policy establishes clear-cut guidelines on the amount & type of purchases that can be done by the teams giving complete visibility for the finance & procurement department on expenses made by the organization through this policy. Efficient purchasing policy can help organizations reduce cost and enhance team productivity. The cost of purchasing might unnecessarily increase in case there is no proper attention given to it.

The Purchase Requisition Flow

This ensures the approval-flow for any products to be purchased. A robust system like Finly, will guide end to end from an employee raising a request for a purchase to the type of product being purchased, getting approvals, adding vendor details into the system, managing multiple POs, sales orders, invoices etc. It also helps in sending an automated notification to all stakeholders involved in the transaction regarding payment, product delivery and hence improving visibility, control and auditability of any purchase being made.

What an effective purchasing policy must contain

Purchase Authority: The policy must define the level of authorization depending upon the hierarchy of the employee in the purchasing department. It can also mention the approval limit for a purchase being made based on designation, the type of products that can be approved to buy & approval body based on various parameters.

Vendor Criterion: Vendors must ensure that they’ve enough product supplies catering to the buyer’s need. The pricing of the product must be competitive enough keeping along with the profit margin. Usually, the vendors’ empanelment criteria are chosen depending upon the following factors:

  • Cost
  • Location
  • Timeline of Delivery
  • Quality of Service
  • Business Credits

Gifting Policy: The gifting policy defines the circumstances an employee may accept a gift. The policy can have any exemptions, exceptional situations or circumstances in which employees may accept gifts that are otherwise not allowed.

Contracts with Vendors: The policy can mention the types of contracts your organization can get into with vendors. It can vary upon the type of products being purchased and also on the vendor as well as on the payment terms. An annual contract will usually get you the flexibility of fixing up the price for buying a specific quantity of a given item over a year with a specific purchase of a product thus allowing your finance team to stay within the budget.

Legal Entity: Perhaps the most important part of the policy. The organization has to validate the legitimacy of the vendor. There has to be an agreement executed by both parties consisting of product details, delivery timeline, payment method, authorization etc… It acts a binding document in case any fallout happens between the organization & the vendor.

Purchase Order Format: A purchase order is a confirmation document provided by the buyer for the goods being procured from the vendor. With FinlyFinance, purchase orders can be created with a single click and be shared with vendors. It should contain the following:

  • Type of product you are buying
  • The quantity desired
  • Price & delivery terms
  • Your logo & company name
  • Address & telephone numbers

Why purchasing policies are important?

  • A company purchasing policy addresses the objectives and provides guidance and support to the purchasing department.
  • It defines the responsibilities of various buying levels and also has budgetary restrictions.
  • Helping in choosing the suppliers to meet purchase and performance requirements.
  • Maintains a healthy relationship among the various stakeholders involved in the purchase leading to a positive spend culture.
  • It will help in formulating a payment structure based upon the organizational terms & conditions.

company purchasing policy

How should an organization purchasing policy be implemented?

With the use of technology, the company purchasing policy can be implemented very easily. Finly’s powerful company policy compliant platform allows your organization to configure the engine according to the terms and conditions of the organization. With FinlyFinance suite, gain complete control and visibility on your business spends and access real-time reports.

Have a happy employee spend culture through Finly

 

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