In the world of nonprofit money management, figuring out smart ways to handle funds is an ongoing challenge.
For the financial folks like CFOs and controllers running nonprofit groups, the main goal is to save money while staying true to what the organization stands for – a mission that keeps going.
This blog is all about digging into how nonprofit organizations can change the way they buy things. We’ll look at special plans and steps to make buying stuff better for your organization.
Plus, we’ll talk about the important rulebook, or “compliance,” you need to follow when buying things for your nonprofit.
We want to help you set up a buying system that not only saves money but also fits perfectly with what your organization is all about. And we’ll guide you on how to make sure you’re following the rules when you’re buying stuff.
We encourage you to download our Purchase Order System Checklist to help you get started. Download it here.
What Are The Common Challenges Of Nonprofit Organizations?
Here are three common purchasing challenges that every nonprofit organization faces:
Paper Requisitions
Paper requisition is one of the biggest challenges for nonprofits. Here is what one of our customers has to say:
“The biggest challenge was the culture-switch, going from old school paper tracking to modernizing our purchasing practices.“ – Beatrix Koev [Read the case study here]
Heavy Credit Card Usage
Most expenses are on credit cards instead of a purchase order process.
A credit card makes it difficult to track expenses and leads to poor cash flow planning.
Planning for expenses is a guess because you don’t know your expenses until all employees have filed their insightful reports.
Timely And Proper Reporting Expenses
Because of paper requisitions and delayed expense reports, it is hard to close books on time, leading to delayed expense reporting. Without a centralized purchasing process, this can be very challenging.
If you rely on a state grant where you have to submit expenses, then delayed expenses mean delayed funding.
If you don’t have enough funds to pay your vendors, that could lead to operational issues. As mentioned, it’s best if you explore innovative procurement solutions like ProcureDesk if you want to fix issues like these.
Things To Consider In A Nonprofit Purchasing System
Before you start implementing a purchasing system, Here are a few pre-requisites to a successful implementation.
Purchasing Policy
The first and foremost is to have a written purchasing policy in place. If you don’t have a purchasing policy, you can use our purchasing order policy for nonprofit companies.
Purchasing policy is the first step in automating your procurement process.
A purchasing policy provides clear guidelines to employees on purchasing from different vendors and when to use a purchase order.
A clear purchasing policy defines the following for the employees when it comes to your current purchasing situation:
- It provides clear guidelines on when to use a purchase request. We recommend a purchase request for everything, but some companies choose to create purchase requests only above a certain threshold amount.
- It defines a clear approval process and informs employees on who has the authority to approve a purchase.
- A list of preferred vendors and how to issue a purchase order to the vendor.
Executive Buy-In
The second prerequisite is to have executive buy-in for implementing a purchasing system.
Once you have a purchasing policy, you have the basic structure for enhancing Spend visibility and increasing compliance.
However, the purchasing process is still manual and might cause purchasing errors.
Many companies spend up to 2-3 hours per request. That is the time consumed in creating the purchase request and getting it approved by the appropriate manager.
You can save up to 50 % of the time spent creating purchase order requests by automating the purchasing process.
A company spends anywhere between $65 to $500 per purchase order request.
This cost assumes the time the requester and management spend on approving the purchase request.
Suppose you have a very simple process, so your cost per purchase order might be on the lower end.
If we assume a $65 per purchase order cost, you can save at least 40% ($26) of the cost by automating the process.
If you create 100 purchase orders a month, it is a $2,600 per month cost savings with the right business tools that can offer you centralized control.
Ease Of Use
If you have a purchasing policy and executive buy-in, the next step is to implement the purchasing system.
Regarding the purchasing systems, there are multiple options available for you.
The key is to select a system that is easy to use.
An easy-to-use system has the following attributes:
- It is easy for employees to use.
- It is flexible to accommodate different purchasing scenarios. For example, you need expense management capabilities if your employees purchase mostly using a credit card.
- It is easy to manage and flexible to adjust to your changing business needs.
- The vendor continuously updates the system. We recommend using a cloud purchase order system, so you don’t have to worry about upgrades. The vendor manages the cloud-based system which is updated frequently by the vendor.
What Purchasing System Features Does A Nonprofit Organization Need?
In this section, we will discuss the key features that you need in a purchasing system.
We use ProcureDesk as an example, but these basic features are available in all good purchasing systems. Read through these features and select the best purchasing system for your nonprofit.
Note: ProcureDesk is our product, and we designed ProcureDesk to solve the key purchasing challenges faced by nonprofit companies. You can read about it in detail below or schedule a demo to see how it could help your team.
Purchase Requisition
The purchase requisition feature automates the manual purchasing process for your company.
If you have a paper-based purchasing process, the purchase requisition module automates that and provides an easy way for your employees to create purchase requests.
Suppose an employee needs to purchase office supplies from Amazon.com.
They have to fill in the paper request and send it for approval.
Once approved, they will go to Amazon.com and place the order.
By the way, it is quite possible that when you go to Amazon.com to place the order, the item’s price has changed, and you need to send it for approval again.
Here Is How You Can Automate The Process With ProcureDesk:
The employee logs in to ProcureDesk and creates a new request.
Employees can create the request from catalogs as well as free text entries.
Catalogs significantly increase purchasing efficiency by providing an online shopping experience to employees.
Let’s say you want to purchase office supplies from Amazon.com.
In this case, the employee will click on the Amazon.com logo within ProcureDesk.
The system will navigate it to Amazon.com, where users select what they need to purchase.
The user clicks on the “Send these items for approval” button, and the system automatically copies the data from the amazon.com shopping cart to the ProcureDesk cart.
Here is an example of how that works:
It is that simple; there is no need to copy and paste the descriptions from different websites into ProcureDesk.
Not all vendors have capabilities like Amazon.com. That is why we also allow you to create your catalogs.
The purchasing experience is similar for the employees, but instead of navigating to a vendor’s website, you create a catalog in ProcureDesk.
Purchase Approvals
Instead of emailing a purchase order request for approval, the system automatically identifies the purchase approval process and then sends it for approval. This makes it easier to boost your purchase order approval cycle.
Let’s say you have a purchase approval process where all purchases need to be approved by the Director of the department, and then it needs to go to the CEO for certain conditions.
All you have to do is define the workflow once, and the system does the rest.
Here is how to easily set up a workflow:
Once you define the workflow, the system automatically routes the purchase for approval.
Here is an example of how the system determines the approval workflow for a purchase request.
In this case, the system sends the purchase request to the department manager for approval.
The approver gets notified for approval through email, mobile app notifications, or a slack message.
The approver can approve the purchase request via email, mobile app, or web application.
Purchase Order
The purchase order module automates the purchase order generation process.
Nonprofit organizations lack PO automation and spend a lot of time manually generating purchase orders from spreadsheet templates.
With a purchasing system, the process works like this:
You first define the rules when you need a generate a purchase order. Every purchase request doesn’t need to convert into a purchase order.
But for those that need to be, the system can do that automatically for you.
All you have to do is select a purchase order template and customize the look and feel of the purchase order template.
Once the purchase order template is selected, the system generates the purchase order and sends it to the supplier.
Here is an example of a purchase order template:
The system can transmit purchase orders using email or through EDI (Electronic Data Interchange)
Budgets
Want to make sure your departments don’t go over budget?
The budgets module can help with that by proactively controlling the Spend.
Here is how you can proactively control spending with budgets.
First, define the budget in ProcureDesk. For example, you have budgets based on the GL account and department.
If you have budgets in QuickBooks Online, the system can automatically import them for you.
Once the system imports the budget values, you can set up employees’ access to budgets based on the department.
Users can select the appropriate budget and submit the purchase for approval when they create the purchase request.
The requester can see the available budget amount, so they know upfront if a budget is available for purchase.
Here is an example of the budget usage summary:
The approvers can also see how much budget is available and what will be available after approving this purchase.
Because the approvers can see the available budget, they can approve with confidence.
Here is a quick summary for the approver:
ProcureDesk also provides additional controls for nonprofit organizations.
For example, if you want to make sure that employees can’t go over budget, all you have to do is configure the system.
If you choose to go with a budget block setting, no user will be able to submit the purchase request when the purchase request is more than the available budget.
Detailed Reporting
The purchase order process is preferred for nonprofit organizations because it gives you complete visibility into your Spending and helps you plan for the cash flow.
In addition, it also makes it easier to study your historical purchase.
However, it might not always be possible to have a purchase order process for every purchase.
For example, if an employee purchases some supplies from Walmart, then a purchase order is not possible.
That is why you need the expense reporting capabilities.
The expense reporting capabilities allow employees to create and submit expense reports easily.
The system supports both scenarios, whether a company-issued credit card or an employee’s credit card.
Expense reporting is made easier with ProcureDesk.
The system automatically imports the transaction from the credit card feed and creates an employee expense report.
Here is an example of an expense report:
Alternatively, you can import all your transactions from a spreadsheet, and the system can create expense reports for individual employees.
Employees can then use the ProcureDesk app to take pictures of the receipts and then upload them against the transactions in the expense report.
The employee can then send the expense for the manager’s approval before further processing.
ProcureDesk breaks up the expenses into reimbursable and nonreimbursable expenses.
ProcureDesk integrates with a system like QuickBooks Online and automatically creates expenses for further reconciliation.
Cash Flow Reporting
Many nonprofit organizations struggle with Spend visibility because of the manual purchase request process.
A purchasing system captures all the spending data in a single place.
For example, you can get a single dashboard to see what is happening in your company.
Here is an example of a Spend dashboard:
Here you can see what the organization is purchasing, who are your top suppliers, and who is purchasing these items.
You can also see the monthly Spending trend and easily identify any anomalies in the spending patterns.
You can accurately predict your cash flow compliance requirements by tracking the Spending patterns without tracking individual expenses.
A common challenge for many nonprofit organizations is accurately predicting open liabilities.
An open order report provides an accurate summary of open orders.
The details include what has been invoiced and pending an invoice from the vendor.
You can then use this information to identify the top supplier Spend. You can then work with stakeholders to accurately predict the cash flow based on the timing of the Spend.
Here is an example of an open-order report:
You can also look at the RNI report to accurately predict the accruals you need to maintain.
The RNI (Recieve Not Invoiced) report shows all delivered purchase orders without an invoice.
The missing invoice could be a matter of timing, or the vendor has not submitted the invoice through the correct channel.
Integration With Accounting Software
With nonprofit business management software, you have complete visibility into your Spend.
You now have a process for Spending control and it and help you with proactive spend management.
But you need the same information in your accounting system to book the cost.
If the purchasing system doesn’t integrate with the accounting software, the AP team must manually transfer the data, which takes a lot of effort and time.
Integrating the purchasing system with the accounting software eliminates any manual data entry into your accounting software.
ProcureDesk supports integration with different accounting software, so you don’t have to worry about data transfer.
ProcureDesk supports integration with:
The integration imports the master data like charts of accounts, suppliers, classes, and projects from the accounting software and syncs the transaction data like purchase orders and invoices.
How Do Nonprofit Organizations Manage Purchasing Compliance?
Nonprofit organizations like yours should navigate compliance by implementing a structured approach that addresses your unique funding sources and spending processes.
Here’s how they keep track:
Grant Management Systems
Use specialized grant management systems to handle funds received through grants.
These systems help track the terms and conditions of each grant, ensuring that the your organization adheres to specific guidelines and meets reporting requirements.
This includes documenting how grant funds are allocated and spent, and demonstrating transparency to grantors.
Bidding Processes
As a nonprofit organization, you probably frequently engage in bidding processes to secure goods and services.
To ensure compliance, establish clear procurement policies and procedures. These guidelines dictate how bids are solicited, evaluated, and awarded.
Utilizing procurement software can streamline this process, and allow your organization to track and document the entire bidding lifecycle while ensuring fairness and accountability.
Approval Workflow
To maintain control over spending and enhance compliance, nonprofits it’s important that you establish approval workflows.
These workflows outline the steps and individuals responsible for approving various expenditures.
Whether it’s purchasing goods or services, seeking approval helps you ensure that your spending aligns with the organization’s budget and mission.
Regular Audits And Reporting
Conduct regular internal and external audits to review your financial practices and ensure compliance with regulations and organizational policies. Audits help identify areas for improvement and provide an extra layer of assurance that your organization is following proper procedures.
Best Procurement Practices For Nonprofit Organizations
Without a doubt- every dollar spent should contribute meaningfully to your organization’s mission. As a result, it’s best to embody best practices that will ensure your nonprofit organization has a healthy procurement cycle.
Let’s discuss some of the key principles and best actionable steps to help your team implement and enhance efficiency in line with your organization’s goals.
Mission-Aligned Procurement
Smart procurement begins with a deep understanding of your organization’s mission and values.
You need to align your purchasing decisions with these guiding principles. This ensures that every procurement action supports the goals of your nonprofit. As a result, it becomes easier to create strategies to impact your payable process, supplier management, and even supplier relationships.
Strategic Sourcing
Implementing strategic sourcing practices in your procurement operation will help you identify the best suppliers, negotiate favorable terms, and secure high-quality goods and services at the best possible prices.
This kind of proactive approach helps your business when it comes to cost savings, without compromising on quality.
Technology Integration
There are procurement platforms that you can leverage to help you and your procurement teams streamline your procurement processes.
Implementing procurement software can help your procurement professionals automate routine tasks, enhance transparency, and provide real-time visibility.
This will enable your business to make more informed decisions in your accounts payable processes.
Collaborative Decision-Making
Foster collaboration and cooperative purchasing with your finance, program managers, and other stakeholders in your team.
With inclusive decision-making, you ensure that your procurement choices align with the diverse needs of different departments while maintaining financial responsibility.
Vendor Relationship Management
Start cultivating strong relationships with your vendors.
With transparent communication even beginning with initial requests, your team can get favorable terms, discounts, and in some cases, long-term partnerships that will benefit both parties.
Performance Measurement And Analysis
Establishing key performance indicators (KPIs) for procurement activities can have a wide range impact on your entire purchasing process.
Regularly analyze these metrics to identify areas for improvement, track cost savings, and assess the overall effectiveness of your procurement strategy. We highly suggest you explore using a purchase order software for this.
Risk Management
Develop a robust risk management strategy for procurement. You may not know, but this can greatly impact your entire purchasing journey.
By doing this, you identify potential risks like supply chain disruptions that can affect your purchasing budget.
Ethical And Sustainable Procurement
Make sure that you integrate ethical and sustainable considerations in your procurement practices. Choosing suppliers with responsible business practices not only aligns with your nonprofit’s mission but can also help with your business continuity.
The Bottomline
By automating the manual purchasing process, you get an efficient purchasing process that increases compliance and productivity for the entire organization.
Here is how to get started with a purchasing system implementation:
- Make a list of the powerful features you need in a purchasing system. Here is a purchase order system checklist to get you started.
- Build a high-level business case and discuss it with your CEO. For example, hours saved and improved cash flow visibility.
- Once you have the executive buy-in, select the best purchasing system for your organization.
