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Complete Guide To Purchase Order Approval Process 2024

  • By ProcureDesk
  • January 07,2024
  • 10 min read

Complete Guide To Purchase Order Approval Process 2024

purchase order approval process

Are you a finance leader in your company struggling to set up an effective purchase order approval process?

No doubt, a long and bureaucratic approval process doesn’t cut to today’s modern businesses anymore. Companies like you need something fast and efficient.

This blog will teach you everything you need to know about the purchase order approval process. By the end of this resource, you’ll learn:

  • Pitfalls to avoid and how to measure the efficiency of the purchase order approval process.
  • The key steps in the purchase approval cycle and how to identify your company’s process.
  • How to set up a purchase approval process for maximum efficiency.
  • Common purchase order workflow templates and how to find the best fit for your company.
If you’re looking for purchase order approval software, you might want to explore our tool, ProcureDesk. Our clients typically see a 40% reduction in cycle time and better spend control after implementing ProcureDesk. We have a team of experts who can show you how it works. Click here to see it in action

What Is A Purchase Order Approval Process?

A purchase order approval process refers to a series of steps and approvals that a company needs to go through to authorize a purchase of goods or services from a vendor.

Essentially, a purchase order approval process checks and balances to ensure the organizations:

  • Spends within a budget limitation
  • Complies with company spending policies
  • Communicates justification for a purchase
  • Chooses vendors with competitive pricing only

How Does A Purchase Order Approval Process Work?

The purchase order is a commercial document between a buyer and a seller.

The buyer creates the purchase order and sends it to the seller for purchasing the goods or services sold by the seller.

The seller then acknowledges the PO and its associated terms or counters with their terms.

Once the seller accepts the PO, the purchase is legally binding between with buyer and seller. The terms of the contract of the terms of the individual PO govern the purchase order.

So, how does the PO process start?

Please note that we are describing an ideal purchasing process; this might or might not exist in your company, depending upon the maturity of your organization.

For example, if you are a startup, you might not have a PO process, and all your purchases are on credit cards, or you are just directly paying the invoices.

Why is An Effective Purchase Order Approval Process Important?

An effective purchase order (PO) approval process is critical to your business, regardless of size.

It offers different benefits that can help your company’s overall financial health. Here are some of the reasons why an effective purchase order approval is critical to your business:

Controls Costs

Having a well-defined process ensures your purchases align with your budgets. Approvals at different levels allow scrutiny, even before an actual purchase. As a result, this reduces the risks of unauthorized purchases and keeps spending within acceptable limits.

Reduces Compliance Risks

Clear policies and procedures embedded in the process ensure compliance with internal regulations and external laws.

This includes adhering to supplier qualification criteria, obtaining required approvals, and avoiding conflicts of interest.

Improves Operational Efficiency

A streamlined process with defined roles and responsibilities facilitates faster approvals and minimizes delays in procuring goods and services.

This keeps your operation running smoothly and avoids procurement bottlenecks.

Promotes Stronger Supplier Relationships

Timely approvals and prompt payments build trust and positive relationships with your vendors. This leads to better pricing, improved service levels, and reliable partnerships in the long run.

Provides Valuable Data And Insights

Data that’s c  collected through the PO process can be analyzed to identify spending patterns, track vendor performances, and even optimize your procurement strategies.

You can use this information to negotiate better deals with your suppliers and even encourage you to make more informed budgeting decisions.

What Is The Purchase Order Approval Process Flow?

In an ideal scenario, the steps are as follows:

Identification Of Needs

A purchase process starts with a need. For example, you are fed up with creating purchase orders in an Excel template and looking for ways to automate the purchasing process.

The need might be driven by increasing productivity or reducing errors in the process.

So, in the example above, the need is to find a purchase order system to automate the purchasing process.

In this step, you probably want to document your requirements. For example, documenting the key features for a purchase order system

Related: Purchase Order (PO) System For QuickBooks

Identification Of Suppliers

Let’s continue with the above example – Since you are looking for a system to automate the purchasing process, the next step is identifying the supplier base and who can offer a purchasing automation solution.

You might look at industry reports or just Google to start the supplier evaluation.

The supplier evaluation could be as simple as seeing a few product demos or doing a detailed analysis through an RFP (Request for proposal) process.

Purchase Approval

Once you have identified the supplier, the next step is to get a purchase authorization, also called budget approval.

Based on the purchase amount and other variables, this might need authorization from senior management or a department head.

You can notify the approves through email or print your approval requests signed.

Prepare The Purchase Order

This step involves creating the purchase order.

Some companies have already automated their purchasing process, which is a non-event.

However, if you have a manual process, such as spreadsheets, it takes some time to create a purchase order.

Send The Purchase Order To The Supplier

Once the purchase order is created, you will send it to the supplier.

You can email, fax, or send the purchase order to the supplier. The best practice is to dispatch the purchase order to the supplier automatically.

Supplier Acknowledgement Of Order

The main purpose of the supplier acknowledgment is for the supplier to confirm whether they can meet the purchase order requirements.

This step is important because you can avoid any surprises from now on, in terms of nondelivery or price changes if the order is already acknowledged.

Please note that not all purchases need to go through these purchasing steps. For example, you don’t need to identify a supplier for office supplies.

You can control costs and get better visibility with an efficient purchase approval process.

You know your approval process is efficient when no one person is the bottleneck for approvals.

What Are The Benefits Of A Purchase Order Approval Process?

In case you are wondering what the benefits of a purchase order approval are, let’s touch upon some of the key benefits of the approval process.

Cost Control

The obvious benefit is cost control.

Having the approval of the purchase order before the PO is sent to the supplier allows you to review Spend.

With effective cost control, you can avoid spending because the purchase is unnecessary or it can be fulfilled through other means.

For example, you are ordering an item that is already in inventory.

Visibility Into Working Capital Requirements

if you don’t have a PO process, you don’t know about the committed Spend till you get the credit card statement or the supplier invoice shows up.

This is a major headache If you are responsible for the treasury function or controller of the company.

So, how does an approval process remedy this?

It provides instant visibility into the Spend and related obligations.

You know what has been approved for purchase and what is in the process of being approved.

You can also see Purchase orders still being created and not entered in the process.

More importantly, you can easily forecast trends based on the purchase history.

Faster Month-End Close For A/P

One of the challenges for the A/P team is reconciling the invoices with purchase orders.

Even if you have a manual purchase order process, it is possible that all purchase orders are not in one place.

With a purchase order approval process, you ensure that all POs go through one common process, and it is easy to find all purchase orders in one place.

After the purchase order is issued to the supplier, you must also ensure that the supplier adds the purchase order to the invoice.

That way, when A/P teams receive the invoice, they know the PO against which they need to index it.

This process can be further optimized by leveraging one system for the pay process.

Bonus: We have compiled a list of best practices into 4 key purchase order approval process templates. So that you don’t research how to set up a new process, you can download this template for free here.

How Do You Setup A Purchase Order Approval Workflow?

Let’s now look at how to set up the order approval process.

An effective purchase approval process starts with a better understanding of your Spend.

What do you need to know before you get started?

Purchasing Categories

One of the biggest mistakes companies make while designing a purchase order workflow is that they consider all purchase categories to follow a similar process.

That is generally not true.

By looking at your past purchases, you can better understand what your company is purchasing and what is currently going through a purchase order approval process.

Let’s take an example of a hypothetical manufacturing company. The purchasing categories would be:

1. Raw materials to manufacture the product

2. Supplies to run the operations, for example, material supplies

3. IT spend- Hardware and software

4. Office and administration expenses

5. Marketing and sales expenses like advertising and sales training

The next section will cover setting up a workflow for different categories.

Average Spend Amount

When setting up approval workflows, a common approach is to set up an approval process based on the purchase amount.

However, how do you decide what amount should be approved at what level in the company?

Most people take an approach where they pick a number out of thin air or so-called best practices.

For example, a manager can approve up to $10,000.

That sounds like a good approach, but what if your average purchase order exceeds $10,000?

In that case, all your purchases need to be approved by senior management, and that causes delays in the process.

So, to design an approval process based on facts, let’s review the history of purchases across the board for the last year.

Draw a bell curve so that you can understand the distribution of the Spend by transaction count. We will use this data in the next section for workflow and design.

Accountability And Control

Some companies prefer that middle management has more power so that they can make decisions faster.

If your company culture is to enable the middle managers with more authority, then the process needs to be designed with that in mind.

However, if senior management prefers more control over purchases, that must be considered in your design process.

We might be stretching here, but the approval process reflects the company’s culture.

Goals Of The Process – Efficient Or Bureaucratic?

Do you want the process to be efficient or complex and bureaucratic, where every purchase needs to be vetted by 4 different groups?

These options are mutually exclusive; in other words, you can have an efficient process or vice versa.

What Are The Common And Uncommon Approaches For A Purchase Order Process Flow Chart?

Having the average purchase order Spend data and different categories would be best now.

We will show you how to use this information to design an efficient purchase order flow.

Amount Based Workflow

A common approach is to design a workflow based on the total amount of the purchase order.

This approach makes sense because it takes care of the basic approval or authorization of the Spend before the purchase orders can be sent to the supplier.

In the above section, we looked at the average purchases over the last 6-12 months, Now we will use that information to design a workflow for the purchase order approval process.

You can use the Pareto principle to understand the distribution of the current purchases and the process flow.

Related: A Quick Guide To Purchase Order For Services

Let’s explain with an example:

Let’s say that your average spend per purchase order is $10,000. So you decide to use $10,000 as the threshold above, which approval is required by senior management.

It would be best if you did not stop there.

Now use this rule and apply this rule to the last 12 months of purchase order transactions. See how many transactions will need senior management approval.

Ideally, that number should be less than 20% of the transactions.

If it is more than that, then adjust the threshold.

The goal is not to have senior management approve all purchase orders.

From a spending perspective, it should be reversed.

So, using Pareto, senior management should only approve up to 20% of transactions, contributing to 80% or more of Spend.

Categories Based Workflow

The second approach to workflow design is to set up a workflow based on the purchase category.

Generally, companies set up only one workflow for all categories.

So, the approval process is the same whether purchasing office supplies or purchasing million-dollar capital equipment.

Granted, approvals for capital investments are already done offline, and approval through the system is just a formality.

However, different categories have different needs, and you should set up an approval process accordingly.

Let’s explain with the help of an example.

For office supplies, there is no additional approval required unless you maintain an inventory of common office supplies products.

If that is the case, you might need the final approver to be the office manager so that they can decide whether the item can be fulfilled from the existing inventory or needs to be ordered from a supplier.

Categories organize most strategic sourcing teams, so if you want procurement to review non-standard purchases, it is a good idea to route the requisitions based on the purchase category.

Another example could be IT purchases.

The IT department might want to review purchases to ensure they meet the IT standards.

For example, if your IT team only supports the Windows operating system, you don’t want employees to purchase a Mac.

Above are some examples where a category-based approval workflow makes sense.

You should review your purchase and approval history to decide whether such approvals are required.

Budget Owner’s Approval

Another common approach is having a budget owner review purchases before sending them to the supplier.

The first question to ask is who is the budget owner?

Is it the person responsible for the department, or is it someone in the finance department who oversees budgets and planning?

In our view, it should be the person responsible for the department’s operation. After all, they are responsible for the results.

Once you have determined who the budget owner is, you need to determine when they need to approve a purchase.

For example, should they approve everything or purchases above a certain threshold?

In the end, you need to balance the need for control with the efficiency of the process.

Ideally, budget owners should review items above a threshold, and finance should be involved if the purchase is over budget.

What Are Examples Of Purchase Order Approval Process Template?

So far, we have discussed the need for different types of workflows. This section will cover some common purchase order approval process templates.

You can combine one or many of these templates to get to your ideal workflow.

So far, we have discussed the need for different types of workflows. This section will cover some common purchase order approval process templates.

You can combine one or many of these templates to get to your ideal workflow.

HR Manager Approval Process

The most common template for purchase order approval is the manager’s approval or the next person in the reporting hierarchy.

The process works as follows:

1. Every purchase needs at least one approver. No matter what the amount is. The idea is to have a basic control to ensure that a second person always reviews the purchase.

2. The second aspect of this workflow is the threshold of approval.

So, for example, a senior manager can only approve up to $10,000. Then, anything above that should be sent to the next person in the reporting hierarchy.

So, to summarize, there are two aspects of the HR manager approval process

  • Approval by the manager of the person creating the purchase order.
  • An approval threshold to decide how many people in the hierarchy should approve the purchase.

Category-Based Approval Process

The category-based template is generally combined with the HR manager process flow described above.

The purpose of a category-based workflow is to have an additional review of the purchase based on the purchase category.

We will look at some common examples where the category-based approval process is combined with the HR manager’s approval.

IT hardware is a good example of a category-based workflow.

For example, an individual in the company wants to purchase a new computer monitor.

Your IT team has a specific standard for monitors.

So, by having a category-based workflow, the IT department can review any IT hardware purchase to ensure compliance with the standard.

Another example is Software; the IT department might have enterprise licenses for productivity software like Microsoft Office. A pre-purchase review can help identify any rogue purchase.

Budget Owners Approval

As the name suggests, this approval workflow is based on the budget owner.

The budget owner could be the person who leads the department, or the owner could be the finance team lead assigned to that department.

The first and foremost goal of the budget owner is to ensure that before the purchase happens, you have vetted that you have enough budget assigned for that purchase.

Now, do you need to do it for every purchase?

The answer is No, for example – you don’t want a printing paper purchase to be approved by the budget owner.

However, you want large purchases approved by the budget owner.

We recommend the following template

1. Set up a threshold for budget owner approval.

2. Set up categories for budget owner approvals; not all purchases need to go for approval.

3. Additionally, you can think of exceptions – for example, if the budget remaining is less than the purchase order amount, then the budget owner should review that.

Purchasing Review

The purchasing review applies only when you have a purchasing team.

This workflow could be used in combination with the HR approval process. Ideally, purchasing should be the first step in the approval hierarchy.

First, this is a review process, not an approval process.

The approval for purchase always comes from the department whose budget is being consumed.

The purchasing review aims to ensure that the purchase is with the preferred vendor and we have received competitive pricing for the purchase.

If you are starting with purchasing automation and setting up the approval process, we recommend not adding a purchasing review on day one. It will shorten the process, and some stakeholders might complain about too much oversight.

If you want to set up a purchasing review process, here are the guidelines.

1. No purchasing review for catalog items

If you already have catalogs with preferred pricing, then purchasing is unnecessary to review the requisitions again.

2. Set up a threshold for purchasing review

Not every purchase has to be reviewed by purchasing. So, first and foremost, it is important to define why you need purchasing to review the purchases.

Maybe you want the purchasing team to negotiate a price for any non-standard purchase or items for which you don’t have preferred pricing.

You could want Purchasing to review the orders to complete the data.

Ideally, it would be best to have a purchasing system driving most of the compliance – data compliance and purchase order approval process.

If you don’t have a purchasing system, set up a threshold for approval and have everything reviewed by purchasing.

What is the difference between purchasing review and purchasing approval?

A review is done to ensure that the order is complete, and the only time you reject the order is when the order data is incomplete.

Conversely, approvals serve as a control to ensure the purchase is routed to preferred vendors with preferred pricing.

What Are The Common Pitfalls To Avoid To Streamline Your Purchase Order Approval Process?

When designing the purchasing process, assume that the process will not be perfect on day one.

You should continuously seek feedback and work on improving the process.

Here are some common pitfalls to avoid while setting up the process.

Designing A Complex Purchase

While designing the process for the first time, keep it minimal and simple.

Over time, you can add more steps to make the process more comprehensive.

In the above section, we discussed different types of workflows (HR, category, purchasing) you can leverage while designing an optimum workflow.

We don’t recommend adding all those steps on day one.

Your purchase approval process must evolve along with the maturity of the procurement function and the adoption of procurement within the organization.

If you are setting up the purchasing approval process, here are some recommendations

1. Set up a minimal workflow – for example, at least one person must approve all purchases.

2. Have clear guidelines for the end-users. For example, the department director must approve all purchases above $10,000.

Once the basic process is working, you can always add more steps.

Look at automating the purchase approval process so that users don’t have to remember who needs to approve the purchase.

Too Many Management Approvals

Along with a complex purchase approval process, the next common mistake we see is a series of management approvals.

What is the purpose of management approval?

1. Is it to control spending by ensuring that all purchases are reviewed by senior management?

2. Is it to control spending by ensuring that all purchases are reviewed by senior management?

These are the most common goals of setting up a management workflow.

Whatever your goal is, the challenge with management approval is that it takes time.

CXOs of companies are busy growing the business and not sitting around waiting for the purchase orders to show up for approval.

Most of the time, the approvals are delegated to executive admins, so we don’t think it is effective.

If you want to set up management approvals, set up a higher threshold for management approvals.

Based on the purchase history, you can easily determine the threshold and focus on 20% (or less) of transactions contributing to 80% of Spend.

That is just a guideline, but the idea here is to ensure that only minimum and most important purchase orders are approved by management.

Related: Purchase Order (PO) System For Small Business

Implement And Forget

Yes, we are overemphasizing this point, but to ensure that the purchase approval process is serving its purpose, you have to look at the efficiency of the purchase process continuously.

We recommend a quarterly review of the process to measure its effectiveness and adjust accordingly.

An objective way to measure the effectiveness of the purchasing workflow is to calculate and report on the end-to-end cycle time for a purchase order.

PO cycle time = [Date & time when PO is sent to the supplier] – [Date & time when the requisition was created]

When measuring the cycle time, divide data by spending buckets. Purchase orders with large amounts might take longer because of the management’s approval.

A qualitative or subjective way to measure workflow effectiveness is to ask the end-users.

For example, you can ask some power users – how is the approval process?

Is it simple, or is it overwhelming?

Based on quantitative and qualitative feedback, adjust the workflow accordingly.

How Do You Make Your Purchasing Process Auditable?

Do you have an internal audit department? Or do you engage external auditors to review the key controls?

If you answered Yes to any question, you need to design the approval process with the auditor’s requirements in mind.

If the answer is No, It is still a good practice to design a process that is easy to audit so that at a later time, when you have to provide data to auditors, it is readily available.

The following are some key items that the auditors look for

Control Documentation

The basic premise for any audit exercise is to determine whether the controls are working as designed.

So, your purchasing approval process should be well documented.

Your purchasing policy should be where the controls should be documented.

If you currently don’t have a purchasing policy, you should put that together before implementing any such approval controls.

Sampling Of Data

Auditors ask for a sample of data to audit the transactions and ensure the controls work as designed.

From an implementation standpoint, you should ensure the approval history of each purchase order is well documented.

Auditors would need a sample of the data along with the audit history of the documents so that they can compare that with the documented controls and identify discrepancies, if any.

If your purchase approval process is not automated, this could be an issue because the auditors would request approval email, etc, as evidence of the documented controls.

Any good purchasing system would have a documented audit history that can be easily made available to the auditors for review.

Documentation Of Exceptions

No matter how good your purchasing process is, you will always have exceptions to the process.

It is normal to have those exceptions, but auditors always look for those boundary conditions where the workflow doesn’t work.

Ideally, it would help if you documented the following

1. The reason for the exception in the workflow

2. How the exception was handled

3. What is being done to manage the exception in the future?

For example – The approval needs to be routed to someone else because the person is out of office. In case you have an automated purchasing system, this can be easily managed through delegations.

Automating Your PO Approval Process With ProcureDesk

Our tool, ProcureDesk, has helped countless of our clients streamline their procurement processes with the features that we provide.

Here are some of the automation features you can apply to your business with ProcureDesk:

Creating Purchase Request

The key to an effective purchasing process is to make the requisition process easy for employees.

You don’t want to take a paper form and make an electronic version. You want to simplify the purchasing experience for your employees.

With ProcureDesk, employees can create a purchase request with fewer clicks without entering much information.

The system recognizes the user and then uses that information to set up default values for departments, classes, charts of accounts, projects, class codes, etc.

Here is an example of how user defaults work:



ProcureDesk has built-in budget tracking & controls so you can stay under budget.

Setting up the budget or importing from a spreadsheet or a system like QuickBooks Online is easy.

Budget screenshot

After setting up the budget, employees can choose the appropriate budget for the purchase.

The system checks for the available budget and helps you keep the cost under control.

You can decide how you want the system to proceed if an adequate budget is unavailable.

For example – show a warning message when the budget is unavailable or block a purchase when a budget is not available.

Purchase Approvals

The system automatically assigns purchase approvals. Your employees don’t need to know who needs to approve the purchase.

You can configure the purchase approvals based on the amount, department, location, budget owners, etc. You can easily configure your custom approval workflows.

The system checks the requisition against the purchase approval workflow and then identifies the required approvers.

Here is an example of how the system identifies the purchase approvals:

In this case, the requester is John, and Mark is the approver who will review the approval request.


All the employee needs to do is submit the request for approval.

Once the request is submitted, the system notifies the approver of a pending request.

The approver can approve from the email without logging into the system or using the ProcureDesk mobile app for approvals.

Automated Purchase Order Creation

You don’t have to worry about converting purchase requisitions to purchase orders with automated purchase order creation.

This saves time, especially when you don’t have a purchasing or buying team.

You can identify what suppliers accept purchase orders, and the system can handle the rest.

Here is an example of a purchase order that ProcureDesk automatically generates.


You can customize the purchase order template to include additional fields.

FREE CHECKLIST: Download our free purchase requisition checklist to help you identify the best software for your business!

Invoice Approval Workflow

With the ProcureDesk invoice approval workflow engine, you don’t have to worry about routing invoices for review and approval.

Using the customized invoice approval workflow engine, you can create your custom workflow and automate the approval process.

Whether you need to route rent payments for approval or need someone to approve shipping costs, the system takes care of that for you.

You can set up workflows based on the following:

Types of invoices, for example, pre-paid invoices, rents, and standard invoices for material and service purchases.

  1. An approval workflow based on the invoice amount and your authorization matrix.
  2. An approval workflow based on the different cost codes, GL codes, etc.
  3. An approval workflow based on the departments.

These are some examples of how you can set up your workflow.

Here is an example of how easily you can set up the approval workflow for invoices:

Setup invoice approval workflow



What Are The Key Components Of A Purchase Order Approval Process?

For you to ensure the effectiveness of your organization’s purchase order approval process, you need to keep in mind the following components and steps

1. Define the roles and responsibilities

2. Standardize your procedures and documentation

3. Keep transparent communication

4. Monitor and control your budget

5. Qualify and manage your vendors

6. Use technology and automation to streamline your processes

What Are 6 Best Practices To Automate Your Purchase Approval Process?

Automating your purchase approval process can help you streamline your workflow, boost efficiency, and save time for your business. Here are some of the best practices you need to remember when you automate your purchase approval process:

1. Analyze and map your existing process

2. Choose the right technology that works for your company

3. Define clear business rules and policies

4. Look for user-friendly software

5. Train your users

6. Monitor and improve your system accordingly. Don’t be afraid to improve continuously.

Who Approves Purchase Orders in a Company?

The approver of the purchase order depends on your company. Although, the typical approvers you may encounter would be the following:

1. Department Managers or Supervisors

2. Procurement Department Staff

3. Finance Department Personnel

4.  Senior Management or C-Level Executives

5. Cross-functional Teams

The Bottomline

Overall, an effective purchase order approval process is important for your company. This not only helps you create a better impact for your bottom line but also helps you build strong relationships with your vendors.

When improving your purchase order approval process, always:

• Analyze the purchase history to understand your purchasing trends.

• Use the purchase history to drive your approval process design.

• Keep it simple and then improvise based on user feedback.

• Keep senior management approval to a minimum.

• Consider other needs, such as the audit department’s needs.

Now it’s your turn!

What you should do now

Whenever you’re ready… here are 4 ways we can help you scale your purchasing and Accounts payable process.

  1. Claim your Free Strategy Session. If you’d like to work with us to implement a process to control spending, and spend less time matching invoices, claim your Free Strategy Session. One of our process experts will understand your current purchasing situation and then suggest practical strategies to reduce the purchase order approval cycle.
  2. If you’d like to know the maturity of your purchasing process, download our purchasing process grader and identify exactly what you should be working on next to improve your purchasing and AP process.
  3. If you’d like to enhance your knowledge about the purchasing process, check out our blog or Resources section.
  4. If you know another professional who’d enjoy reading this page, share it with them via email, Linkedin, Twitter.