Whether you’re running a small business, a non-profit organization, or managing a department’s budget within a larger company, having a clear approval process for spending is crucial. An approval workflow helps ensure financial accountability, prevents unauthorized purchases, and allows you to stick to your budget.
While an ad-hoc approach may work when you’re just starting, you’ll need more formal processes and document approval software to manage spending requests efficiently as your organization grows. Here’s how to set up an approval process that works for your organization.
Define Spending Limits and Approval Levels
The first step is determining spending limits and who needs to approve purchases at each level. For example:
- Purchases under $500 can be approved by a manager
- Purchases between $500-$2,500 require approval from a director
- Purchases over $2,500 must be approved by the CFO or CEO
The spending limits and approval hierarchy should align with your organization’s size and financial policies. For a small business, the owner may want final approval on all major expenditures.
Identify Approvers
Once the approval levels are defined, assign approvers for each level. Approvers should be employees who understand budgets, and financial policies, and can assess whether a purchase request is justified and within the available budget.
Common approvers include:
- Department managers
- Finance managers
- Directors
- Vice Presidents
- CFO or Controller
- CEO (for larger expenditures)
You’ll want to have multiple approvers at each level to cover vacations or employee absences. Using document approval software can make it easy to adjust approval workflows if someone is out of the office.
Develop a Submission Process
Determine what information is required when submitting a spending request and standardize the submission process across your organization. Common elements include:
- Description of the item(s) or service being purchased
- Business justification or use case
- Total cost including taxes, fees, and shipping
- Vendor or supplier details
- GL coding or accounting details
- Requested delivery date
Using a SaaS document approval software with online forms can streamline this process by automatically routing requests through the proper approval workflow based on the spending amount.
Some organizations opt for a two-step process where requests undergo an initial vetting or pre-approval before a formal purchase order is submitted. This makes sense when purchases require significant research and price comparison.
Set Approval Deadlines
To keep the process moving, you’ll want to set reasonable deadlines for approvers to respond to requests. A common timeframe is 2-3 business days, allowing approvers time to review requests along with their other responsibilities.
If a request is urgent, you’ll need a way to flag and prioritize those time-sensitive purchases. Some document approval software allows you to escalate overdue requests to ensure they don’t get stuck.
Integrate with Accounting and Budget Management Process
For effective budget control, the spending approval process should integrate with your accounting software and budget management process. As requests are approved, the committed expenditure should be recorded and deducted from the appropriate budget.
This prevents overdrawing budgets and allows you to see actual funds remaining in real time. Using cloud document approval software that integrates with accounting systems makes this simple.
Provide Request Visibility
Rather than having spending requests go through an opaque process, allow employees to check the status of their requests online. This level of transparency reduces frustration over delays and unanswered questions.
High-quality document approval software will include dashboards where employees can see where their request is in the approval workflow.
Analyze Spending Patterns
Capturing data on all purchase requests, whether approved or denied, gives you valuable insight into your organization’s spending patterns and policies. Analyzing this data allows you to:
- Identify opportunities to negotiate better pricing through bulk purchasing
- Determine if certain budget categories are over or underfunded
- Evaluate adherence to purchasing policies
- Optimize approval workflows by adjusting approval levels or identifying bottlenecks
Using online document approval software makes it easy to run reports and analyze spending data over any period.
Set Up an Audit Process
To maintain accountability and minimize financial risk, you’ll want to implement a process for periodically auditing purchase requests and actual expenditures. An audit process helps:
- Enforce purchasing and approval policies are being followed
- Prevent fraud or misuse of funds
- Identify areas for improving purchasing efficiency
- Ensure expenditures are properly coded to the correct budget categories
Most document approval software includes reporting features to facilitate audits by providing a full audit trail of each purchase request and approval. This is far more efficient than dealing with paper trails or manual record-keeping.
Implementing a clear, structured approval process for spending with the right document approval software promotes financial responsibility and accountability across your organization. While it requires some upfront effort, the long-term payoffs in budget control and cost savings make it worthwhile.
