Purchasing Policy Guide for CFO’s [Template Included]

Are you a CFO or controller looking to tighten the reins on spending and gain crystal-clear visibility into your cash flow? Implementing a robust purchasing policy is your key to success.

In this guide, we'll walk you through the essential elements of a purchasing policy and provide a step-by-step approach to crafting one that drives cost control and sets your procurement process up for scalable growth.

Don't start from scratch! Download our free purchasing policy template below to get a head start.

[Download the Free Purchasing Policy Template HERE]

Then, use this guide to customize it for your specific business needs.

Why Does Your Company Need a Purchasing Policy?

A well-defined purchasing policy offers a multitude of benefits. Here are some of the key advantages we've observed after working with hundreds of companies:

• Standardized Guidelines: A purchasing policy eliminates ambiguity in vendor interactions. While small businesses might manage with informal practices, this becomes unsustainable as you grow. Without a policy, departments often develop their own processes, making consolidation difficult and hindering scalability. A clear policy ensures consistent guidelines across all locations and departments.

• Clear Expectations for Behavior: Think of your purchasing policy as the "commandments" for your employees' spending. It sets the boundaries for acceptable conduct.

• Elevated Role of Purchasing: For companies with a purchasing department, a policy clarifies its role and encourages engagement with other departments. It communicates the purchasing process and can drive adoption of purchasing systems.

• Streamlined External Stakeholder Interactions: A purchasing policy isn't just for internal use. It provides guidelines for suppliers, defining:

Creating Your Purchasing Policy: A Step-by-Step Guide

Here's a breakdown of the key sections to include in your purchasing policy:

1. The Objective of the Purchasing Policy: Clearly state the policy's purpose and scope.

2. Role of the Purchasing Department: Define the purchasing department's responsibilities and value.

3. Vendor Setup and Onboarding Process: Outline the process for vetting and onboarding new vendors.

4. Contract Signing Authority: Specify who is authorized to sign contracts and any signing authority levels.

5. Purchasing Authority Levels: Define spending approval limits at different organizational levels.

6. Delegation of Authority: Establish the process for delegating approval authority.

7. Purchasing Process and Accepted Norms: Detail the requisition, approval, and purchase order processes.

8. Supplier Invoices and Accepted Norms: Define how invoices should be submitted and processed.

9. Competitive Bidding: Outline the requirements for competitive bidding and exceptions.

10. Ethical Purchasing and Conflict of Interest: Define ethical standards and address conflicts of interest.

11. Supplier Diversity: If applicable, outline your company's approach to supplier diversity.

12. Record Retention: Specify document retention requirements.

The original article provides in-depth guidance for each of these sections with examples.

Key Considerations for Your Purchasing Policy

• Keep it Simple: Use clear, concise language and avoid jargon. Aim for a policy of 6-8 pages. Include examples to improve understanding.

• Prioritize Implementation and Adoption: Ensure the policy can be easily implemented and adopted by employees.

• Communicate Effectively: Regularly communicate the policy to employees, especially new hires.

• Consider Resource Requirements: Ensure you have adequate staffing to support the policy.

• Focus on Intent and Control: Clearly explain the intent behind each policy and implement controls to ensure compliance.

Conclusion

A well-crafted purchasing policy provides:

• Cost control.

• Efficient purchase approvals.

• Reduced fraud risk.

Take the first step towards a more controlled and transparent financial future. Download our free template today.