Nothing bought off-contract

1. Why PO policies get ignored

Almost every finance team has a purchase order policy. Far fewer have one people follow.

It’s not that people want to break the rules. It’s that the rules are slow, unclear or easy to get round. The PO takes three days to approve, so the order goes in first and the PO comes later. Nobody’s sure whether a £400 software subscription needs one. And the preferred supplier list lives in a spreadsheet nobody can find.

The result is off-contract spend: buying from the wrong supplier, at the wrong price, without approval. Finance finds out when the invoice arrives, which is too late to do anything except pay it.

2. Five signs your process is being bypassed

1. Retrospective POs. The PO is raised after the invoice arrives, so the approval is a formality.
2. Invoices with no PO number. Suppliers have learned they get paid without one.
3. Lots of small POs to the same supplier. Purchases split to stay under someone’s approval limit.
4. Suppliers you’ve never heard of. Spend going to suppliers that aren’t on the approved list.
5. Prices above contract. You have a negotiated rate, but invoices come in at list price.

Recognise two or more? Your policy is written down, but the process isn’t doing the work. The approval chain audit will show you where approvals slip.

3. Eight controls that change behaviour

The principle behind all of them: make the right way the easy way.

1. Raise it before you commit. Approval has to happen before the order is placed, not after the invoice arrives. That’s the only point where saying no still saves money.
2. No PO, no pay. Tell suppliers that invoices without a valid PO number will be returned, then do it. Suppliers start asking your people for the PO.
3. Route approvals by role and value. Approvals go to the right person based on amount, spend type and cost centre, without anyone having to work out who that is.
4. Show the budget before approval. An approver who can see what’s left in the budget makes a better decision than one approving blind.
5. Make approved suppliers the default. Catalogues with approved suppliers and contract prices already filled in. If the easy option is the compliant one, most people take it.
6. Plan for absence. An approver on holiday shouldn’t be the reason a PO waits a week. Set up cover and reminders so requests keep moving.
7. Have a route for genuine emergencies. Allow urgent purchases with retrospective sign-off, but log every one so emergencies don’t become a habit.
8. Match the invoice to the PO. The PO is only a control if the invoice is checked against it. See Two-way, three-way, no-way for how.

4. What a PO policy needs to say

Keep it short enough that people read it. It should answer:

Start from our purchase order policy template, and give staff the plain-English version in How to raise a purchase order.

5. Measuring compliance

Share the numbers by department, not by person. The aim is to find where the process is too hard, not who to blame.

If approval times are long, compliance won’t improve however often you send the policy round. For a wider view of control from request to payment, try the Purchase-to-Payment Control Score.