For a large company of 3,000-plus employees, what purchase amount requires a purchase order and what amount is allowable without a purchase order?

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"Currently, due to SOX regulations, my company would like everything over $50 to go through a purchase order. At times this is so tedious, since a new vendor addition has to be done before a purchase order can be placed. I have read tons of question on this, but have yet to see anyone answer the question. Help!"

Your question is an issue for many companies trying to figure out what they feel is the "right" level for requiring a PO. We don't know of a standard amount set by organizations of your employee size. Besides employee count, other factors include revenue, profitability, industry, number of transactions and their average dollar value, and what management may consider to be a material dollar amount that would affect the financial condition of their business. Here are a few thoughts for consideration:

  • Generally for a company of your size the purchase limit should be approved by your Board of Directors through a policy issued and approved by your management team.
  • Your executive management team should determine what they feel is a reasonable limit. Many companies use p-card purchases as a way to set their limits so that employees are empowered to make necessary purchases. It also helps makes processing and payment of low dollar purchases efficient.
  • We also suggest that if you have outside auditors, you seek their advice on what they may consider to be a reasonable limit, or what their clients of similar size are doing.
  • At your size you may consider something that is over $500 to $1000. This would possibly eliminate the purchases of regular routine office supplies, where a $50 limit can be very burdensome. This limit is not a specific number from research but rather a gut reaction to the size of your organization based on the limited information that you have provided. Again we would refer you back to some of the factors that we noted above.

What you want to point out to your management team is the low level of a $50 limit is causing increased work load, delays with ordering and processing, and is possibly increasing your cost structure in a way that it is not beneficial for the organization.

If you have not done so, explore p-cards as an option. P-cards are a proven practice for handling low dollar-value purchases and eliminating a large number of invoices. They can eliminate the need for POs for small dollar purchases. P-card programs allow the company to build in a number of controls, including requisition procedures.

You may find the study by Hackett Group relevant here—they found that the companies they term “world class” actually have a lower percentage of PO invoices and a large part of that was due to use of p-cards. Click this link for the article: “Should Your Purchasing Policy Enforce POs for All Transactions?”

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