Procurement Process

All businesses need to purchase items for their business activities and it is very important to have a proper procurement policy in place and it is equally important that the procurement policy is implemented accordingly. Similarly, documentation of purchases is also very vital for businesses. There are several reasons:

  • Any purchase of materials/ items should be properly authorized by the appropriate level of management. This ensures that quality and price of items is best suited for the entity. Documentation of the procurement process (Purchase request, Request for quotations, Selection of supplier, Approval etc.) provides evidence that purchase is made after it is approved by the appropriate level of management.
  • When goods are received, it should be properly documented in the form of goods received note. This is a control to check the quality and quantity of goods, whether they are in accordance with the goods ordered.
  • Invoice issued by the supplier should also become a part of the purchase documentation. It provides information about the cost of items purchased.
  • Documentation of purchases provides information and records for financial accounts.
  • Documentation of purchases provides information and records for cost and management accounts.

General purchasing procedure and documents

Formal detailed procedure for purchases and documents generated during the purchase process may differ from entity to entity, based on the nature and size of the business. However, the basic requirements should be same for all types of businesses and more or less the process and controls are similar in all entities.

A generic purchasing procedure is as follows:

  • Purchase process starts when the stores department identifies a need for purchase of inventory. Stores department generates a document (Purchase Requisition) requesting the procurement department to purchase the items needed. Ideally the purchase requisition should contain the quantity and complete specifications of goods required. Purchase Requisition should be authorized by appropriate level of management as per the policy of the Company.
  • Purchase department proceeds with the purchase requisition and selects a supplier. A Purchase Order is issued to the supplier which ideally contains description of goods, quantity of goods required and price agreed with the supplier.
  • When the goods are dispatched by the supplier, they are usually accompanied by a document called Delivery Note. This document is basically a statement from the supplier that the goods have been dispatched from his warehouse. One copy of the delivery note is given to the Stores Department when the goods are delivered and the other is kept by the Supplier (Driver making the delivery).
  • On receipt of goods, Stores Department generates a document called Goods Received Note which usually contains description of goods received, date on which goods have been received and quantity of goods received.
  • A Purchase Invoice is issued by the supplier to get the payment for which goods were delivered. Accounts department matches the invoice with goods received note and purchase order (Three way matching) to confirm that goods received are in accordance with the purchase order and invoice is correct. After being satisfied, the accounts department makes payment to the supplier according to the credit terms agreed with the supplier.
  • The purchase invoice received from the supplier provides information about the cost of items purchased.


General purchasing procedure – Flow Chart