Are you looking to create a policy for your organization's procurement processes but not sure where to start? Developing a procurement policy increases transparency, accountability, and efficiency in your purchasing processes.
In this article, we'll guide you through the steps of writing a comprehensive procurement policy, including a sample template that you can customize to fit your specific needs. With a well-thought-out procurement policy in place, you can improve your organization's practices and achieve better outcomes.
What is a procurement policy?
A procurement policy is a set of guidelines and procedures that defines the way an organization purchases goods or services. Offering both strategic principles and tactical steps, it provides a structured approach to procurement activities and ensures they're carried out transparently, fairly, and efficiently.
Why businesses create procurement policies
Procurement policies establish the rules and regulations an organization will use when selecting vendors and suppliers or making purchasing decisions. They set clear standards for ethical behavior, reduce the risk of fraud and corruption, and ensure accountability for those procurement choices.
Ultimately, a procurement policy serves as a guiding document for anyone involved in the procurement process. It establishes consistency, transparency, and accountability in all procurement procedures. By implementing and adhering to a well-structured policy, organizations can streamline procurement processes, minimize risks, improve efficiency, and ultimately achieve better value for their money.
What should a procurement policy include?
At a bare minimum, a well-defined procurement policy needs to include the following.
Policy scope
Clearly defining the policy's scope helps determine which procurement activities are covered, such as the types of purchases included, monetary thresholds, and whether it extends to all departments or specific ones.
Roles and responsibilities
The roles and responsibilities should be stated clearly so stakeholders involved in the procurement process—including the procurement team, department heads, and budget holders—can be on the same page.
Procurement process
The policy should detail the step-by-step procurement process, starting from the identification of a need and moving all the way through vendor selection, evaluation, contract negotiation, and supplier management. It should also specify the use of competitive bidding, requests for proposals (RFPs), or other methods of soliciting bids.
Transparency and fairness
A key aspect of any procurement policy is to promote transparency and fairness in the process. This includes guidelines for bidding, evaluation, and selection criteria for awarding contracts to ensure that all bidders have equal opportunities and are assessed objectively.
Financial regulations
These regulations should cover budget restrictions, authorization limits, and payment terms. This will help procurement activities adhere to the organization's financial policies and cost control constraints.
Compliance and legal requirements
Procurement policies should address compliance with applicable laws, regulations, and industry standards. This may include provisions for environmental sustainability, labor practices, anti-corruption measures, and data protection, depending on the industry and specific organizational requirements.
Monitoring, reporting, and evaluation
Procurement activities should be monitored and evaluated regularly, with reporting requirements in place. This helps to identify areas that need improvement and ensures effective implementation and compliance with the policy.
Procurement policy sample template
The US Agency for International Development (USAID) offers a sample template for a procurement policy that you can use to get started.
Based on general principles of fairness and transparency, it provides an excellent sounding board as your team discusses the ins and outs of your own procurement needs.
How to write a procurement policy in 3 easy steps
While the process may take some time, writing a procurement policy can be broken down into just three steps.
Step 1: Put together a procurement committee
To write a procurement policy, the first step is to put together the procurement committee that will be responsible for drafting the policy. The committee may include members of the board, the finance team, the organization's administration executives, and of course procurement office leadership.
Step 2: Determine the policy's purpose and scope
Once the committee is in place, the next step is to discuss the purpose and scope of the policy. These strategic decisions will guide the committee throughout the process of researching best practices and drafting the policy.
Step 3: Hammer out the specifics
Finally, use the template above to consider each section one by one, tailoring the policy to the specific needs and goals of your organization. Remember to work together closely because each member of the committee brings their own specialties and perspectives to the process.
How BILL can support your procurement policy
BILL helps organizations implement and regulate two critical aspects of any procurement policy: certifying delivery and payment processing.
Certifying delivery
To make sure your procurement policy is being followed, it's important to oversee the actual delivery of goods and services, making sure both quality and quantity are meeting your expectations.
One way to do this is to apply 3-way matching—making sure any purchase orders required by your policy are matched against the delivery receipt and the vendor's invoice. Unfortunately, this can be a highly manual process that takes up a lot of time across different departments.
BILL's financial automation platform applies 3-way matching automatically, saving hours of time while helping to ensure that any discrepancies don't slip through the cracks.
Says Courtney Smith, Accounting Manager at aG: “Whereas before we had to do everything manually with billing, thanks to BILL’s three-way matching capability for NetSuite, the entry part has been almost eliminated. Paying bills is so easy—just review and approve.”
Payment processing
BILL also simplifies the payment process while helping you ensure that your procurement policy's financial controls are followed to the letter.
With customizable approval flows, strict user permissions, and an automated audit trail—as well as multiple payment methods—BILL helps increase the security of your payment process while improving efficiency and strengthening vendor relationships.
To see what BILL can do for your business payments, visit BILL Accounts Payable.
Procurement policy FAQs
Here are some quick answers to the most common questions about procurement policies.
What are the elements of a good procurement policy?
A good procurement policy should include clear guidelines on competition, negotiating terms, documentation, and internal controls. Transparency, objectivity, and compliance with regulations are key principles to consider.
The procurement policy template from USAID includes the following:
- Purpose
- Committee members
- Separation of duties
- Planning
- Requisition
- Controls
- Reporting
- Vendor selection
- Vendor criteria
- Procedure for tender
- Use of dealers and sole suppliers
- Local purchase orders
- Recurring orders
- Certifying delivery
- Payment processing
What are the principles of a procurement policy?
The principles of a procurement policy include fairness, transparency, accountability, efficiency, and compliance with legal and ethical standards. By following these principles, organizations can ensure that their purchasing processes are conducted in a responsible and effective manner.