The Importance of Employee Spending Controls

I’ve said it before and I’ll say it again: purchasing is a core business process that must be managed and run efficiently. Anyone in business will know this without being told (hopefully!)

Yet, haphazard purchasing processes plague businesses of all sizes.

Of course, achieving a sustainable, streamlined purchasing function is easier said than done. Writers, analysts and procurement consultants love to make things sound easy – but managing company spending (especially for large-scale organizations) is difficult.

Now for the good news – there is no shortage of ways to improve an inefficient purchasing function.

Chief among those improvement methods, in my humble (okay, not so humble) opinion, is establishing clear employee spending controls.

A Definition

Employee spending controls – often referred to as approval routing – is an approval chain based on hierarchies within a company. For instance, employees with a department (say, marketing) will make requests for various goods they need to do their jobs (say, MacBooks).

That request is passed on to a manager, who is able to approve the request and, in turn, make the purchase.

If the request being made is for a particularly expensive product, that specific request may have to be sent to a more senior manager for approval. That’s because, within an employee spending control framework, employees are given thresholds for what they can approve.

For instance, an initial (less senior manager) may have an approval threshold of $5,000. Any purchase more expensive than that will go to a more senior manager, who may have an approval threshold of $10,000. For any purchases larger than $10,000, the request will continue up the chain.

And so on.

An explanation

The reason employee spending controls (approval routing) are implemented is simple: to ensure all spending is accounted for and green-lit by more senior employees. By having managers approve requests (instead of employees simply purchasing whatever they want) an organization ensures it has a better understanding of the purchases being made.

Also, by having managers approve each purchase, an organization promotes better adherence to purchasing best practices such as using preferred vendor relationships. Often, an organization that orders the same product routinely will have negotiated preferred pricing with a specific vendor. Employee spending controls will help with adherence to such relationships.

Expenses such as travel and meals can also be subject to a similar approval chain.

How can e-procurement help?

E-procurement software and employee spending controls go hand in hand. That’s because an effective e-procurement solution is designed with employee spending controls (or approval routing) in mind.

For instance, e-procurement solutions will allow users to establish spending thresholds for various managers along the approval chain.

For more on how Procurify handles employee spending controls, click here.