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Using ApprovalMax to Ensure a Robust Purchasing Process



One of the ways I enjoy helping my clients is by setting up systems and processes to help run their SMEs more efficiently and robustly. Below I have outlined the 10 stages of how I think the purchasing process should be organised. Whilst this process can be done manually, I suggest using ApprovalMax software to systemise and streamline the procedure. 


1. Raise the Purchase Order 

A purchase order (PO) demonstrates a company’s intent to purchase a specific amount of a product or service at an agreed price from a supplier. 


2. Approval of the PO 

Determine who is responsible for approving POs and who has purchasing authority -this may include one or several individuals. Decide which items they are authorised to purchase and if there is a spending cap. For smaller companies, this is likely to be informal, but as the company grows, arrangements should be formalised in a Delegated Scale of Authority document. ApprovalMax integrates with accounting packages such as Xero to automate PO approvals, saving time and accommodating remote work. 


3. Sent to Supplier 

The PO is sent to and accepted by the supplier. This can be done manually via email, but ApprovalMax can automatically send approved POs to suppliers. Ensure to test the system before going live! 


4. Deposit/Upfront Payments 

If the supplier requires a deposit or upfront payment, approach it with the same consideration as offering credit by checking the supplier’s solvency. Omitting this step can result in financial loss. 


5. Goods received  

The supplier should include a goods receipt (GR) with the delivery to ensure that everything listed is included and that no items are missing or damaged. However, it is common for GRs to be misplaced or handed to the accounts department as random pieces of paper. Until recently, GR processing could only be managed in large ERP systems like SAP, which are typically too expensive for SMEs. However, ApprovalMax can now record the goods receipt against an approved PO. At this stage, the company becomes liable to pay for the goods and so by using ApprovalMax’s PO and GR functionality, the finance team can estimate this liability through simple reports, streamlining the month-end accrual process. 


6. Invoice Issued 

The supplier generates an invoice reflecting the details on the PO, including quantities, costs, and payment due dates. Note that some accounting systems, like Xero, refer to purchase invoices as ‘Bills.’ 


7. Invoice processed  

Invoices should now be entered into the company’s accounting software. ApprovalMax can include a pre-determined matrix to automate the approval process, saving time. 


8. Matched together  

Before paying the invoice, perform a 3-way match by comparing the purchase order, invoice, and goods receipt to ensure they match. Historically this has been a manual, labour-intensive process requiring LOTS of bits of paper. ApprovalMax removes the paper and speeds up the process. 


9. Invoice paid  

Once the invoices are validated, matched, and approved, accounting software such as Xero can systemise payments. The finance team proposes a single payment run in Xero for the owner to approve, removing the need to enter individual banking transactions manually.  This enables multiple suppliers to be paid in a single transaction and significantly reduces the administrative workload. 


10. Purchase Ledger Reporting 

The finance team should regularly monitor the purchase ledger and run aged reports to ensure timely payments and obtain the necessary data for forecasting cash requirements. 

 

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