How to Create an Effective Procurement Policy (plus a template)

Is there ever a time when your finance or procurement team isn’t under pressure? We’ll leave that up to you to decide. As forecasts are slipping with rising economic uncertainty, action is a non-negotiable. Chances are, your procurement processes have something to do with it. Sound procurement processes increase efficiency, remove unnecessary spending, and ultimately drive better financial outcomes. But, how? If your internal stakeholders don’t adhere to procurement processes. With a procurement policy. Procurement can only keep you on track if your internal stakeholders are on track. 

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When those benefits show up on your financials, procurement becomes less about defending the numbers and battling red tape, and more about driving strategy. Fortunately, we have a procurement policy template ready for you to use. 

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What is a procurement policy?

A procurement policy is a formal set of guidelines that establishes how an organization manages purchasing its goods and services. These guidelines and standards ensure control, efficiency, and alignment with corporate objectives because, without them, spending becomes inconsistent and disconnected from strategic goals. 

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Now that we’ve established what a procurement policy is, let’s be clear on what it’s not:

• A finance or procurement-only document: While owned by finance or procurement, it should be designed for the internal stakeholders making purchases (ops, marketing, product, anyone who spends).
  
• A static PDF: Your policy should live where work happens. It should be embedded in tools, workflows, and real-time decisions rather than being filed away.
• A gatekeeping tool: It’s not designed to slow teams down, but to give them guardrails so they can move faster with confidence.

Having understood what can go wrong without a procurement policy, along with what it’s not, you might want to get started on crafting one that transforms procurement into a lever for financial clarity and a way to alleviate stress amidst pressure. In this article, we articulate what a sound procurement policy should look like, what’s included, and how to create one. Read on to learn more. 

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What's included in a procurement policy?

Procurement policies differ from one organization to another and are largely shaped by corporate objectives, industry, and company size. But at their core, they’re not just about operational convenience; they’re about financial discipline and strategic alignment. A well-crafted policy keeps procurement activities consistent, compliant, and directly tied to your company’s broader goals, ensuring that every dollar spent delivers long-term value.

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You might not know what’s included in a procurement policy, and that’s okay. Below are some non-exhaustive universal elements that you’ll find in policies:

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• Policy statement: This outlines why the procurement policy exists and emphasizes that internal stakeholders’ compliance is imperative. 

• Definition of the procurement (or finance) department’s role: Procurement teams are set out to get the best value for money (in other words, spend well). Finance teams are tasked with ensuring that procurement teams know how to spend well by implementing procurement spending limits, for example. 

• Vendor setup and onboarding: Outlines the process for requesting and approving new vendors, including required documentation and review by Procurement or Finance to ensure alignment with selection criteria.

• Vendor contract permissions: Specifies who is authorized to sign vendor contracts based on the contract’s value, ensuring appropriate oversight and accountability.

• Authority and responsibility: Your procurement policy should clearly outline stakeholders involved in your procurement process, along with their accountability. Knowing who is allowed to purchase and what, when they do it, and for what reason is crucial.

• Procedures (aka how to purchase goods): Procurement processes differ from organization to organization, and you should never assume that your internal stakeholders know how to procure. Assumption = recipe for messy procedures. 

• Invoicing guidelines (not rules): Having a designated email address or e-invoicing solution to centralize incoming invoices prevents duplicates, late fees, or end-of-month surprises. 

• Ethical considerations: Operating a procurement policy is one thing, but doing so with fairness, integrity, and accountability is key to long-term success. Preventing conflicts of interest and breaches of ethical standards can be achieved through a well-crafted procurement policy.

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Procurement policy template

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Creating a procurement policy from scratch can be overwhelming; there’s a lot to get right. The good news? You don’t have to start from zero. We’ve put together a flexible template to give you a solid foundation. While every business is different, this template provides the structure you need to shape a policy that fits yours.

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The template contains the following:

• Finance department’s (among others) role.
• Vendor setup and onboarding
• Vendor contract signing approval
• Purchasing authority levels
• How to purchase goods and services
• Invoicing and processing
• Ethical implications

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How to write one:

If the procurement policy template above doesn’t fit your needs, fear not, you can still craft a policy of your own in five steps. Remember, a procurement policy is intended to be cost-effective, increase efficiency, and boost your bottom line, by giving you control of all stages of your procurement process, not the opposite. 

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Below are the steps to writing your very first procurement policy:

1. Conduct a needs assessment: You should first identify how your company procures and the environment in which it does so to identify the scope. Understanding your budget constraints and potential risks is key to ensuring that your procurement policy aligns with your corporate objectives. 
2. Define your procurement policies: Define the goals and guiding principles of your procurement function (along with how finance partners with it) and outline clear steps, roles, and accountability measures.
3. Check in with your stakeholders: Before finalizing your procurement policy, collecting feedback from your internal stakeholders is key. Use their feedback to refine your policy. Don’t underestimate the weight of their opinion, as they’ll ultimately be the ones using it. 
4. Implement your policy: Now that your policy is ready, it’s time to roll it out. Drumming up excitement for what might appear to be a set of rules might be tricky. 
5. Evaluate it: Procurement policies aren’t meant to last forever. Regularly assess how well the policy supports your company’s evolving goals, identify gaps or inefficiencies, and make necessary updates. Ensure any changes are communicated to all relevant stakeholders to maintain alignment and accountability.

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Best practices:

A procurement policy will only benefit your objectives if it’s used. When crafting your procurement policy, bear in mind how the policy will be used and by whom. Just like any well-crafted UX, your policy must be UX friendly.

Here are a few tips to make sure that your procurement policy is adopted as well as implemented starting from day one:

• Involve your internal stakeholders early on: Your procurement policy should ultimately be a reflection of how your process will be used by internal stakeholders. This entails involving procurement staff, finance staff, and legal counsel, among others.

• Goals and objectives: You should begin by identifying what you’d like this policy to accomplish. Having a strong understanding of your procurement objectives concerning your corporate objectives will inform your procurement policy. It’s counterintuitive to write a procurement policy without first understanding what you’d like it to accomplish.
• Establish clear instructions: Chances are that your procurement process will not be adopted if internal stakeholders don’t know how to use it. 
• Uphold accountability: Internal stakeholders may occasionally stray from the policy (it happens!). That’s why it’s important to have a designated person or team responsible for regularly auditing procurement activities to ensure they align with the standards outlined in your policy.
• Policy reviews and updates: Writing a procurement policy is one thing; keeping it updated to stay relevant is another. For your procurement policy to continue serving your corporate objectives, it’s important to regularly track its efficacy.

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The benefits of an effective procurement policy

Procurement policies offer broad organizational benefits, but their impact on finance teams is often less immediately visible. Below are just a few that could help you walk into your next board meeting with confidence:

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• Cost efficiency and savings: Ensuring that all purchases are made at optimal prices and are within budget can be facilitated by a procurement policy. 
• Improved cash flow: Standardizing procurement processes provides finance teams with better visibility and control over spending, which ultimately supports accurate cash flow forecasting and management. 
• Better supplier management: Leveraging procurement policies within finance to evaluate suppliers can help ensure that those who offer the best financial terms are 

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Final thoughts

Financial closing doesn’t have to be a defensive exercise. And with a well-crafted procurement policy, it won’t be. Remember, procurement policies ensure that your internal stakeholders are sticking to the procurement process to go after the best value, by following a standardized process, and that your spend visibility is increased. 

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How Pivot can help you

A procurement policy is just one piece of the puzzle. Without the systems and workflows to support it, even the best policy won’t translate into real results. That’s where Pivot comes in to help you turn policy into practice and spend control into a strategic advantage. Ready to get started? Get in touch with Pivot today.