March 29, 2022
How-to

Optimize your purchasing process with finance automation

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The New York State Comptroller recently found that the New York Racing Association (NYRE) wasn’t following its own rules for purchasing and procurement and may have spent $4.79 million on unapproved vendors over the course of 15,000 purchases. 

Many of the records of these transactions were also simply lost, including one that paid a contractor over $700,000 dollars. 

Your purchasing process is important, and a loose strategy for spend management can lead to the kind of mess the NYRA has found itself in. Unfortunately, the purchasing process is multilayered and full of tedious documentation, which is why it often goes unused.

Automation speeds up your purchasing and procurement management processes by making your spend visible, standardized, and centralized. Financial automation also performs the most time-consuming tasks and documentation in the purchasing process, improving purchase speed and procurement strategy compliance.

We’re going to walk you through what the purchasing process is, why it's different from procurement, and how to streamline negotiations, approvals, and more with financial automation tools.

What is the purchasing process?

The purchasing process is the approved method for team members to buy resources with company money.

If this process sounds similar to procurement, well, it is. However, there is an important distinction we should define. 

The difference between procurement vs purchasing

Though the two ideas are sometimes used interchangeably or in the same breath, the purchasing process isn’t the same thing as the procurement process.

Purchasing is a subset of procurement, in the same way all of the branches are part of the tree. But purchasing is specifically tied to the act of buying raw materials, services, or subscriptions your company needs.

By contrast, procurement is the larger umbrella over your purchasing process. Procurement represents the strategy for all purchasing and the people who are in charge of that process. Larger companies may have their own procurement department or procurement teams setting and executing this strategy, while the accounting department in smaller companies may fulfill these duties through accounts payable.

This formal process of budgeting, approval methods, and purchasing requirements is called procurement planning.

Now that we’ve defined what is and isn’t purchasing, we’re going to walk through a typical purchasing process step-by-step. 

The 7 steps of the purchasing process

Your company’s purchasing process should be simple enough to follow step-by-step, but comprehensive enough to protect your budget and prevent maverick spend

1. Understand and identify business needs

This isn’t so much an active process as it is the natural state of doing business. Things you’ll need will crop up in the form of problems to be solved. A new process may require equipment, a new avenue of work may call for a new software subscription. A new or expanded department will need to buy things to help support them, etc.

Once you have identified a need, you (or your company and stakeholders) have to decide how much to spend on that need.

2. Create a budget

This is going to vary wildly depending on your need. If a copy machine breaks, the budget for replacing it will be straightforward, likely a Google search away. If you’re implementing new business processes or opening a new department, that will be more complex.

Whatever the need, you need to set a number for the maximum amount you can reasonably spend on the solution.

Check out our guide on operating budgets for a deep dive into creating and managing your budget. 

3. Source products and review

This could mean reaching out to wholesalers for an existing product that you intend on buying frequently, manufacturers for customized equipment, local products to ease transportation and supply chain costs, or software companies and service companies for subscriptions.

Reviewing products or services you want to buy is a three-stage process: checking published or user reviews where possible, speaking to companies that use the product, and wrangling a test period for the product that you can try before you buy. 

4. Document request for product 

This request and approval process will be based on your company’s procurement strategy. This is where you formalize the budget, whose budget the purchase will be coming out of, and who signed off on the review and testing process.

These documents would then ideally be signed and stored somewhere safe but still easy to access and check for authorized users.

5. Communicate and negotiate with the vendors and potential suppliers

This is where good supplier relationship management can come in handy. The vendor negotiation process is more art than science, but all communication down this avenue needs to be thoroughly recorded. Handshake deals, as they say, are worth the paper they’re printed on.

Ideally, during this part of the process, you obtain as many competitive bids as you can on the same or similar products before moving onto the next step.

6. Create a purchase order and receive product

Determine a form of payment, create a contract or purchase request with payment terms, then purchase the equipment or services you need.

7. Document and record inventory

All purchases need to be filed, all payment schedules need to be accessible to finance teams (hopefully with reminders), and all related departments will need access to that data.

Not to mention training on any new workflows for equipment and services you’ve just purchased.

How Ramp can help with the purchasing process

Ramp is a financial automation platform designed to smooth many of the steps of the purchasing process through transparency, codified purchasing rules, automated expense reports, and vendor management

We’re going to go back through the purchasing process and highlight where automation can help. 

Understanding and identifying needs. Financial automation doesn’t help a whole lot here–equipment is going to need to be replaced, new processes at the company will require new gear and services.

Creating a budget. Ramp allows the creation of an unlimited number of credit cards (physical or virtual) keyed to certain members or departments, with a limited budget. You can set a limit on these cards to exactly the budget for the intended purchase. For purchasing subscriptions or recurring memberships, these cards can be set to be refilled with the amount needed on those dates.

Source products and negotiate with the vendor. Vendor management automation can store contracts, keep track of vendor negotiations, automate your payments to the vendor, and even create a virtual card for just that vendor to help track spending and spending approval through a single source of payment. 

Ramp’s platform can also benchmark your contract against thousands of customers and send you alerts when you’re overpaying for a product or service. And with Ramp’s Buyer team, you can even automate the vendor contract negotiation process. 

Document the request. Ramp’s expense management platform lets team members put in requests for purchases, which can inform the accounting or procurement department through Ramp's dashboard or right through a Slack channel. These requests can even be reviewed and approved (or denied) without leaving Slack.

Purchase and receive the goods. Once you’ve uploaded an invoice, Ramp will extract all the necessary details and can even make the payment on the timeline you’ve set. Plus, Ramp cards give you 1.5% cash back on all your purchases.

Document purchase. Ramp’s platform integrates with most accounting software (QuickBooks, NetSuite, Sage Intacct, Xero, and more), so bills and purchases go right into your existing accounting architecture. 

Financial automation eases almost every step of the purchase process, making it more likely that the process will actually be used. Plus, through automated comparison, negotiation, and the ability to more closely watch your spending, financial automation prevents the steady budget leaks that come from unapproved spending and even shadow IT.

Key takeaways about the purchasing process

We’re going to leave you with a quick, condensed version of the purchasing process, how it's different from procurement, and where financial automation can help so you have a handy reference sheet for later. 

​​What are the steps in the purchasing process?

  1. Understand and identify your needs
  2. Source products
  3. Document requests
  4. Communicate and negotiate
  5. Purchase and receive 
  6. Document and inventory

What is the difference between purchasing and procurement?

Purchasing is the process of solving a problem by sourcing and buying material or services.

Procurement is the larger strategy for how your company purchases things, and the department and people in charge of creating, executing, and adapting this strategy. 

Can Ramp help with purchasing?

Ramp’s financial automation tools help record and store contracts, manage vendors, automate payments, and enforce purchasing and procurement rules through virtual cards.

Are you ready to improve your purchasing process with financial automation? Get started with Ramp today.

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