Approval limits and who signs off

An approval limit is a rule that says who may sign off an order up to what amount. Small orders go through quickly. Bigger ones wait for someone with more authority.

What you need before you set limits

• A list of everyone who can raise a PO.
• A list of who can approve, and their roles.
• A dollar amount for each level. Pick figures that fit your own spending, not someone else's.
• A named backup for each approver, for when they're away.
• A rule for who approves the approver's own orders.

Why approvals exist

Wikipedia describes the purpose of a requisition system as guaranteeing that goods and services are bought with the consent of the line manager, and that a sufficient budget is available.¹

Two goals, then. A person with authority says yes. And the money exists.

How the software describes it

Every product words this its own way, so read your maker's documentation. Two examples, both from the makers' own manuals:

ERPNext

ERPNext has an Authorization Rule, which allows a custom authorization or approval on a document, based on conditions you define.²

You can base a rule on fields such as Net Total, Grand Total and Discount %, and say who the approver is if the condition is matched.² You then choose an approving role, the role that can approve forms over the authorized value.²

The manual's own example is for sales orders, not POs. It says a Sales Order whose Grand Total exceeds $1,000 should be verified or submitted by the Sales Manager only.² The same page lists Purchase Order among the documents a rule can apply to.² A PO rule works the same way, with your own figures.

Business Central

Microsoft's documentation says that requesting and granting approval to create new records are typical workflow steps.³ It lists the creation of purchase orders as one example of an approval workflow event.³

Here the approval is a workflow you define: what starts it, and what happens next. Check Microsoft's pages on setting up approval workflows for the actual steps.

Setting up your own levels

Write the rule on paper first. Then put it in the software.

• Level one: the buyer can approve small, routine orders.
• Level two: a manager approves anything over the buyer's limit.
• Level three: the owner approves anything over the manager's limit, or anything outside normal suppliers.

Name the dollar figure for each, and note which currency. A business that buys in more than one currency needs to say which one the limit counts in.

Checks to keep

• Separate the jobs where you can. Wikipedia calls separation of duties a common control.⁴ The person who approves a PO shouldn't be the only person who receives the goods and approves the bill.
• Don't split one order to dodge a limit. Two POs for one purchase defeats the rule. Ask staff to raise one order.
• Review the limits. If your spending grows, so should the limits. Look at them once a year.
• Payments have limits too. Wikipedia notes that most companies require a second signature on cheques whose amount exceeds a specified threshold.⁴

Where approval sits in the cycle

Approval comes before the PO is sent. It's the third step in the steps from request to payment. Later, three-way matching checks the bill, and may have its own approval step if something doesn't match.