Save Money by Improving Your Purchasing System

Do you ever get an uneasy feeling that your purchasing system is out of whack?

Person reviewing a receipt next to a tablet

Are you concerned that expenditures are being made on your company's behalf that would never meet with your approval?

Finding an agreeable balance within a purchasing system can be a hard-won victory. Some companies react by over-controlling expenditures without regard for how much money is lost when an executive invests an hour reviewing purchases of $100 supplies that are fairly routine.

The benefit of coming up with a workable purchasing system can usually be measured in savings. For instance, one business had several different locations -- each with its own approach to buying paper, pens and other materials at various local office supply stores. By consolidating purchases, the company saved 15 percent in expenditures.

Here is a purchasing quiz to see how your company is doing:

1. Does your company have written policies and procedures about expenses that the accounting department uses when reviewing submitted invoices?

Yes ____

No  ____

2. Does the accounting staff understand (either by written policy or by verbal agreement) when it's not necessary for an employee to seek his or her supervisor's approval for an expense?

Yes ____

No  ____ 

3. Have you established expense limits for each department head, so that he or she can make expenditures without prior approval up to a certain level?

Yes ____

No  ____

4. Does the accounts payable department have a list of what "spending without approval" limits have been set for each appropriate employee?

Yes ____

No  ____

5. Have you hired a purchasing agent in your company whose sole job is making purchasing decisions?

Yes ____

No  ____

6. Does your company have a formalized purchase order system?

Yes ____

No  ____

7. Does everyone in your company understand how to use this purchase order system, and are they using it routinely?

Yes ____

No  ____

8. For expenses that require a manager's approval, do employees' requests ever get turned down?

Yes ____

No  ____

9. Do the CEO and top accounting executive review policies and procedures on expenses annually and make adjustments as needed?

Yes ____

No  ____

Scoring:

Give yourself 1 point for every "Yes" answer.

If you scored 9 – Congratulations! Your expense/purchasing activities are highly efficient and productive.

If you scored 7 or 8 – Most of your expense authorization and purchasing efforts are on target. With a little tweaking, you can improve your performance in this area.

If you scored 5 or 6 – By making this a high priority, you can have a dramatic impact on the efficiency and effectiveness of your expense/purchasing process. Failure to do so may have negative consequences soon.

If you scored below 5 – It's time to go back to the drawing board. You might consider discarding all your expense/purchasing practices and starting anew. Your accountant can help you institute a new, more efficient process.

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