One of the biggest keys to maintaining and growing a company’s financial reserves is having an efficient, repeatable purchase approval process. This allows you and your employees to obtain the work-related items you need without overspending and unnecessary purchases. 

Not all approval processes are created equal, though. In this article, you’ll discover the steps to an efficient approval matrix, which can help save your company money:

What is a purchase requisition?

Many people, both inside and outside the business world, use the terms “purchase requisition” and “purchase order” interchangeably. It is important to note, though, that while both documents are part of the purchase order approval workflow, they are not the same. 

A purchase requisition is a formal request by a company employee or other authorized person to purchase products or services on behalf of the company. This is an internal company document - when completed, it is typically submitted to a purchasing manager or similar individual for its approval.

A purchase order (PO), on the other hand, is a document that a purchasing manager or other authorized person submits to a supplier to formally request products and services. This document, including the associated PO number, is generated after a purchase requisition has been approved.

What is an approval process?

A purchasing approval process is simply a documented, teachable process a company uses to receive, approve, and submit purchase orders for products and services. Products might range from printer paper and break room coffee, to hardware components or servers.

How does the approval process work? 

Typically, an employee who needs to order products or services on behalf of the company completes a purchase requisition. Depending on your purchasing department structure, the completed requisition could go to the purchasing manager, accounting manager, or even the founder if the business is a smaller startup.

Then, after purchase approvals have been granted, the purchasing decision-maker creates a purchase order to submit to the supplier. The purchase order allows you to track payment, fulfillment, and delivery to ensure that you are getting what you pay for. 

How to automate the purchase approval process?

For smaller startups with few purchasing needs, a formal process might seem unnecessary. As a business grows, though, the purchase order process flowchart can become significantly more complex. 

Automated platforms like ControlHub help businesses handle this complexity without the risk of errors, long approval wait times, and overspending. 

By carefully determining your purchasing needs and integrating an automated procurement platform like ControlHub, you can efficiently manage your purchase processes and protect your company’s budgets. 

What are the steps to creating an approval matrix? 

Creating a purchasing matrix for approvals is a critical part of controlling costs while ensuring that your employees have the resources they need. Here are the steps you’ll need to create an efficient purchasing approval matrix for your organization:

• Identify and document stakeholders, including approvers - this includes managers and personnel in other departments who could be affected by a specific purchase.
• Assign approvers to monetary tiers - it might not make sense for a VP or CEO to take the time to approve an $8 request for coffee filters, when a lower-level approver or an automated purchasing platform could take care of these requests instead. Larger purchases - $2,000 or more, for example - might require the attention and approval of higher-ranking managers or other key decision makers.   
• Determine which purchases or circumstances will require a unique approver - if an employee wants to purchase equipment that requires specialized knowledge to evaluate, you might want to bring in someone who understands the value, potential risks, and opportunities that come with the purchase. Your company’s purchase order approval workflow should provide detailed steps for choosing a unique approver.
• Pair new vendors with specially trained approvers. A vendor that has worked with your company for years will likely catch any mistakes before they become problems - they have been through your onboarding process and know what to expect. New vendors, though, don’t have the same advantage. A specially trained approver can help streamline vendor onboarding and prevent costly errors. 
• Determine who will approve the completed purchase order workflow and matrix - once the collaboration is complete, one or more key individuals will need to approve your company’s approval matrix before it can be implemented.

What is The Significance of Purchase Orders Template in Streamlining Procurement?

Harnessing the efficiency of purchase orders templates is akin to setting a foundational pillar for your hardware startup's procurement processes. A well-structured template provides a standardized format and ensures consistency in capturing vital order details. With the dynamism that hardware startups usually display, any tool that fosters streamlined, repeatable, and error-free operations is invaluable. When embedded within an automated purchase order system, such templates become the bedrock for speed, accuracy, and scalability. While automation is the engine driving the procurement car, the purchase orders template is the blueprint, ensuring the vehicle is built to perfection.

Frequently Asked Questions

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What is the difference between a purchase requisition and a purchase order?

Purchase requisition vs purchase order: A purchase requisition vs purchase order is an internal document used to request products or services within a company. It's the first step in the purchasing process. On the other hand, a purchase order is the official document sent to suppliers to request specific products or services. It's generated after the purchase requisition is approved.

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Why is having an approval process important for purchase orders?

Having an approval process for purchase orders helps ensure proper control and oversight of company expenses. It prevents unauthorized purchases, helps manage budgets effectively, and reduces the risk of overspending. A solid approval process can save businesses money and promote financial health.

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How does the purchase approval process work?

The purchase approval process starts with an employee filling out a purchase requisition form with the details of what they need. The requisition then goes through the approval chain, typically involving the purchasing manager, accounting manager, or other designated approvers. Once approved, a purchase order is created and sent to the supplier, initiating the purchase process.

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Is an approval process necessary for small startups?

While small startups may feel that a formal approval process is unnecessary, it becomes increasingly important as the business grows. As purchasing needs become more complex, having an approval process helps maintain control, ensure accountability, and prevent unnecessary spending. It's better to establish a process early on to avoid challenges down the line.

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How can automation help with purchase order approvals?

Automation, such as the ControlHub platform, simplifies and streamlines the purchase order approval process. It reduces errors, speeds up approval times, and provides a centralized system for managing purchases. Automated platforms like ControlHub help companies handle the complexity of purchasing, minimize delays, and protect budgets.

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What is an approval matrix, and how do I create one?

An approval matrix outlines the hierarchy of approvals within a company. To create one, you need to identify and document stakeholders and approvers, assign monetary tiers to appropriate approvers, determine when unique approvers are needed for specialized purchases, pair new vendors with specially trained approvers, and seek final approval for the completed purchase order workflow and matrix. This process helps ensure that the right people are involved in approving purchases based on their expertise and authority.

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