How to set up a purchase approval process (with approval limits)

Why a written approval process helps

When purchases are approved by whoever is nearby, in a chat message or by email, that works until it does not. A written process gives you:

• Spending control before the money is committed, not after the invoice arrives.
• Budget visibility. Finance sees what is coming before it lands.
• Separation of duties. The person who asks for something is not the person who approves it, and neither of them is the person who pays.
• An audit trail. When someone asks why you paid a supplier, you can show the request, the approvals and the quotes.

The aim is not to slow people down. A good process lets routine purchases flow and puts attention where the amounts and the risks are.

The four stages: request, approval, quotes, order

A typical approval process has four stages:

1. Request. Someone records what they need, how many, roughly what it costs, which budget or department it belongs to, and why it is needed. The reason matters. An approver who has to guess will either reject the request or approve without thinking.
2. Approval. The request goes up an approval ladder. Each level approves or rejects, and a rejection includes a reason.
3. Quotes. For purchases above a set amount, the buyer collects quotes from several suppliers and compares them. Depending on your policy, quotes are gathered before approval, so approvers can see them, or after, by a buyer working within an approved budget.
4. Order. The approved request becomes a purchase order to the chosen supplier. The order is the commitment. After that come the goods receipt and the supplier invoice, which are checked against the order. That check is covered in three-way matching.

The most important rule: no purchase order without an approved request, above whatever small amount you allow people to buy directly.

What a good request records

Whatever tool you use, each request should show at a glance:

• What is being bought, the quantity and the estimated total, including tax and delivery.
• The currency, and the total converted into your main currency.
• The department, project or budget it is charged to.
• Why it is needed, and by when.
• A preferred supplier, if there is one, and the quotes received.
• Who has approved it so far, when, and any comments they made.

If an approver needs to ask a question before deciding, the request was missing something. Add that field to your template.

Setting approval limits by amount

Approval limits decide how many levels a request has to pass, based on its value. Here is an example you could adapt, in SGD:

When you set your own limits:

• Use the total of the request, including tax and delivery, in one currency. If someone requests USD 8,000 and your limits are in SGD, convert it at the current rate before deciding which band applies.
• Choose approvers by role or by reporting line. "The requester's manager" or "the requester's manager's manager" works for most levels. A named person, such as the finance manager, works for specialist levels.
• Never let anyone approve their own request. If the requester is also the next approver, the request should go to the level above.
• Arrange cover for absences. Decide who approves when an approver is on leave, so requests do not stall.
• Different types of purchase can follow different ladders. IT equipment might always need the IT lead. Marketing spend might go to the marketing head. Capital purchases might always need a director.
• Watch for split orders. Breaking a SGD 12,000 purchase into three SGD 4,000 requests to avoid a higher level is an easy way round limits. Review requests from the same person to the same supplier over a short period.

Quotes and choosing a supplier

Asking for quotes is how you show you got fair value. To make the comparison meaningful:

• Compare like with like. Same specification, same quantity, same delivery terms. A cheaper quote that excludes delivery or installation is not cheaper.
• Look beyond price. Payment terms, delivery time, warranty, the currency of the quote and the supplier's track record all matter.
• Convert to one currency. If one supplier quotes in MYR and another in USD, convert both at the same rate on the same day.
• Keep the quotes with the request, not in someone's inbox.

Most importantly, record the reason when you do not choose the cheapest quote. There are often good reasons: faster delivery, better warranty, a supplier you already trust, or a cheaper option that does not meet the specification. Write the reason down at the moment of choosing. Months later, it is what protects the buyer and the approver from awkward questions.

When things change after approval

Real purchases do not always go to plan. Decide in advance how you will handle:

• Price increases. If the cost goes up after approval, the increase should be approved too, with a reason. Set a small threshold below which it can go through without re-approval.
• Emergency purchases. Allow them, but require the request to be raised and approved within a few working days, and review how often it happens.
• Recurring purchases and contracts. Approve the contract or annual budget once, then let individual orders against it go through without a full ladder.
• Purchases that skip the request. If a purchase order is raised directly, apply the same amount-based limits to the order itself, or require a request above a set value.

Common mistakes to avoid

• Too many levels. If a SGD 200 purchase needs three signatures, people will find ways round the process. Keep small purchases simple.
• Limits that never change. Review your limits every year as the business grows.
• Approvals in chat and email. They are hard to find later and easy to fake. Approvals should sit on the request itself.
• Approvers who cannot see the context. Show the budget, the quotes and the reason in one place, so the approver is not working blind.
• No connection to receiving and paying. Approval controls what you order. You also need checks on what arrives and what you are billed for.

If approvals in your business currently live in a spreadsheet and a group chat, see moving from spreadsheets to an ERP and the signs you have outgrown your accounting software.

Where Nyra fits

In Nyra, each type of purchase request has its own approval ladder. Each level can start from a minimum amount in your main currency, and the approver is either a named person or someone a set number of steps up the requester's reporting line. Nobody can approve their own request, and every request needs a reason. For competitive requests, the type sets how many quotes are needed before submitting. Quotes sit side by side, the final approver picks the winner, and if it is not the cheapest a reason is required and kept on the request. An increase to an approved request goes through its own approval. Purchase orders raised without a request can follow amount bands that require approval or a request first. See more on Nyra's procurement module, or book a demo.