How do I Write a Purchasing Policy?

A written purchasing policy helps employees negotiate deals with potential suppliers.
A written purchasing policy helps employees negotiate deals with potential suppliers. (Image: phone negotiation image by Vladimir Kirienko from

Writing a purchasing policy may seem like a waste of time, especially in a small company. But having a formal policy that all employees understand will help ensure that you spend your operating money wisely. As you grow, written policies will become critical to your success. Write your purchasing policy with those who will use it in mind. If they are unable to understand the policy, or if the process is too complicated or unwieldy, employees will become frustrated and are more likely to either make mistakes or intentionally ignore policy in order to get the job done.

Decide who will have authority to make purchases on the company’s behalf. Set any limits on purchasing authority and determine who will approve purchases over those limits.

Write guidelines for vendor selection. Determine how the bid process will work and how many bids must be obtained for each opportunity. Explain all criteria that purchasers should use to evaluate bids. Criteria may include price, quality, insurance, length of vendor operation and more.

State the circumstances under which employees may enter into contract. Outline the process for contract approval and assign authority for contract signing. Set a maximum contract limit. Stipulate how often regular service contracts must be evaluated.

Set rules about accepting gifts and meals from vendors. Some companies allow meals but not gifts, while other companies allow gifts up to a certain dollar value. Some companies allow group gifts, but not personal gifts and some forbid vendor gifting entirely.

Draft a conflict of interest policy. Some companies forbid employees to purchase from vendors in whom they own an interest: others extend the prohibition to companies in which a close friend or family member owns an interest. Still others apply no such restriction.

Establish confidentiality guidelines. Stipulate what kinds of information are considered confidential and set a time period during which employees in possession of this information are forbidden from releasing it.

Explain your ordering system. Give instructions on writing and issuing purchase orders. If your computer system allows you set minimum stock levels and alert purchasing when those levels are reached, explain how to do this. If your business warehouses goods using a bar-coding or other computer system, provide instructions on changing existing products and setting up new ones.

Document the policy that other employees, such as receiving personnel, will use to make purchasing agents aware of missing, damaged or incorrect shipments.

Tips & Warnings

  • You may wish to have an attorney review any contract document before you sign it.
  • Print policies on logo paper.
  • Publicly-traded companies usually have strict conflict of interest policies. Consult an attorney if you are writing a purchasing policy for a public company.

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