A formal purchasing process is essential for all businesses, and even more for businesses that wish to scale up without any sudden roadblocks. It, not only, facilitates quicker and more effective purchasing, but also offers transparency to all parties and helps businesses to effectively control their operating expenses. In today’s modern world, the Purchase Process is now being majorly driven through System-based Approval Workflows.
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The requestor submits a Purchase Request for a particular good or service. The request could be a simple form that specifies the model number of the product, or the type of service required, or it could be a complex form that lists down several specifications (floor-ceiling values, minimum performance limits etc.) or the various services that are required. The form is the basic starting point that contains all relevant information needed to initiate the right approval process.
It's a good practice to get employees, finance and procurement teams to get involved in the purchase process early by letting them submit requests, even if they don’t have a clue regarding the vendor of the goods or services that is to be requested.
Also, the requestor can ask to onboard a new vendor, in case the vendor they wish to work with is not currently registered with the company. This is another crucial component of the initial phase.
The key implication is that in both these cases, onboarding a new vendor happens faster and results in better tracking as it begins with the request phase.
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Once the Purchase Request has been submitted, approvers are notified vide different in-built communication engines – emails, SMS, WhatsApp, as well as system notifications or intra-system chats – when they log into the system. Normally, these communication modes have deep links to redirect the approver to the system login screen.
When logged-in, the approvers can see all relevant information that is needed to approve the request. They can easily check up-to-date budget statuses and also make sure that the requirement, along with the terms are ‘good-to-go’. Further, on being unsure or uncertain about the request, they can return the request by asking some pertinent questions or even consult another stakeholder.
Also, there are System Escalation Matrices in place with an option to escalate the request to the next level to ensure that, both requesters and approvers, are operating within predefined TAT and are held accountable in case of a delay. These systems have State Machine Counters built in to calculate and throw reports & analytics on aging and areas of improvement.
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After approvals, a Purchase Order (PO) is created and the company’s ERP should house the PO. There are two key advantages to house the PO in your company’s ERP – firstly, it saves a lot of manual labour for the AP Team as it makes it easier to convert an PO into an invoice automatically; and secondly, it helps to be prepared before the invoice is received and improves financial planning.
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Next, the requester or the individual for whom the request was opened, then confirms that the products or services have been received. This is crucial because it ensures that the company only pays for goods or services that have been received.
The requester needs to be informed of the tentative arrival date of the goods/ services and also indicates whether the request is received, either in full or in part. This information is then sent to the PO’s Line Team in the ERP so that the AP Team can accomplish a three-way match without the need to physically send the invoice to the requester without the hassle of glancing at an unintelligible financial file.
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Another breakthrough when it comes to streamlining the process, is integration AP Automation Tools with AR Automation Tools of the supplier (if they have). This, in fact, will greatly reduce manual dependency, payment verification & reconciliation process.
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To ensure monitoring and improvement in the contemporary purchasing process workflow, metrics, that are most significant to the organization can be measured and optimized. A key indicator of Process Efficiency is the time it takes to issue a purchase order once the purchase request has been submitted. And a key indicator of Process Quality is the number of ‘actions’ or steps required for approvals – steps such as edits, vendor modifications and inquiries.
Businesses will benefit greatly once they ensure that the contemporary purchasing process is up and running. Apart from acceleration of operations, your team will have gained much-needed insights into each and every step of the procurement & purchase process. Further, with the capability to estimate an accurate budget at any moment, your finance teams will be able to give your business complete control of spending habits – departmental budget owners will get access to real-time budget data that will empower them to make more informed and intelligent choices. The implication – Spending will now be appropriately managed.