What is a Procurement Policy & Why Should Your Team Have One?

What is a procurement policy?

A procurement policy is a set of rules or guidelines that outlines the principles and procedures governing an organization’s purchasing activities. It serves as a reference point for employees involved in the P2P process, including those making purchasing decisions, approving requisitions, and managing vendor relationships. A well-defined procurement policy acts as a roadmap, guiding an organization’s procure-to-pay (P2P) process — the entire lifecycle of acquiring goods and services, from requisition to payment. This policy establishes clear guidelines for expense management and spend management, ensuring responsible use of company funds while fostering strong relationships with vendors.

How is a procurement policy used?

A procurement policy serves key functions within an organization:

• Establishing spending guidelines: A procurement policy defines the approval hierarchy for purchases based on their value. This helps prevent unauthorized spending and ensures management oversight for larger transactions.
• Promoting vendor management: The policy outlines preferred sourcing practices, vendor selection criteria, and contract negotiation procedures. This contributes to building strong relationships with reliable suppliers who offer competitive pricing and quality products or services.
• Enhancing efficiency: The policy outlines preferred purchasing methods like electronic procurement systems, which streamline workflows and expedite approvals.
• Improving transparency and compliance: A clear procurement policy reduces the risk of errors and fraud by establishing a transparent purchasing process. It also ensures compliance with relevant regulations and ethical business practices.

Benefits of a procurement policy.

In today’s competitive business landscape, controlling expenses and maximizing the value derived from every purchase is paramount. A well-defined procurement policy acts as a cornerstone for achieving these goals. Beyond simply outlining purchasing procedures, it offers a multitude of benefits that significantly increase a company’s financial health and operational efficiency.

• Cost savings: By establishing approval workflows and vendor selection criteria, the policy helps control spending and ensure value for money.
• Reduced risk: Clear guidelines mitigate the risk of fraud, unauthorized purchases, and non-compliance with regulations.
• Improved efficiency: Streamlined processes and standardized procedures facilitate faster approvals and a smoother P2P flow.
• Enhanced visibility: The policy provides a clear overview of the organization’s spending patterns, enabling better budgetary control and informed financial decision-making.
• Stronger vendor relationships: A well-defined policy fosters transparency and trust with vendors, leading to mutually beneficial collaborations.

Best practices for creating a procurement policy.

Developing an effective procurement policy requires careful consideration of various factors. Here are some key best practices:

• Align with organizational goals: The policy should align with the organization’s overall objectives and risk tolerance.
• Involve key stakeholders: Seek input from representatives across different departments involved in the P2P process.
• Define roles and responsibilities: Clearly outline who is authorized to make purchasing decisions at different spending levels.
• Outline approval workflows: Specify the approval process for requisitions based on their value, ensuring proper oversight.
• Establish vendor selection criteria: Define the criteria for selecting qualified and reliable vendors.
• Promote ethical sourcing: Include statements supporting ethical sourcing practices and responsible business conduct.
• Stay up to date on regulations: Ensure the policy adheres to relevant industry regulations and legal requirements.

How Airbase helps with procurement policy.

Airbase is a full procure-to-pay software platform that integrates with a well-defined procurement policy. It is a cloud-based spend management software that provides companies control and visibility into every dollar spent.
Airbase allows companies to establish automated workflows that mirror the spending thresholds outlined in the procurement policy. Based on the pre-defined spending limit, Airbase automatically routes it to the appropriate approver, eliminating delays and ensuring compliance with established approval hierarchies.

Effective vendor management is an important aspect of every sound procurement policy. Airbase provides a centralized platform for managing vendor relationships electronically. Companies can store essential vendor information, track their performance against pre-defined criteria, and engage in seamless communication, all within the Airbase ecosystem.

A key challenge for many companies lies in gaining clear visibility into spending patterns. Airbase tackles these challenges by providing real-time reporting of a company’s expenses. This helps track actuals against budgets and gain real-time insights into spending patterns and identify potential cost-saving opportunities.

Streamlining expense reporting and approval processes is another area where Airbase shines. Employees can submit expense reports, attach receipts, and categorize the expenses based on their company’s defined expense categories. This simplifies the approval process for managers and ensures compliance with expense-related policies. The AI-powered intuitive interface makes expense reporting easy, which encourages timely submissions and reduces the burden on both employees and finance teams.

Businesses rely on a complex ecosystem of software tools. Airbase offers seamless integration with 70+ ERP systems. This eliminates the need for manual data entry, reduces the risk of errors, and ensures consistency across financial data. By integrating with existing systems, Airbase fosters a unified workflow that simplifies the P2P process and empowers informed decision-making at every stage.