Purchasing Approval, whether by Budget Holder or Non-Budget Holder is an optional feature of the system - and the system will continue to function quite happily without either having been implemented. You are reading this Article most probably because you want to implement Purchase Approval with Budget Holders and Commitments. Purchasing Approval refers to the approval of both Purchase Orders (if you use them) and Purchase Invoices. Such Purchase Approval can be by nominated Budget Holders or Non-Budget Holders (who are initially associated with a range of Suppliers (Vendors)). This article deals with the former.
An “Approver” is someone in your organisation (or associated with your organisation) who has the authority to approve Purchase Orders and Invoices on behalf of the company (Purchasing Approver), or alternatively, one who is authorised to approve Supplier Payments (Payment Approver) – detailed in another Article entitled “How do I Implement Batch Payment Approval”. Purchasing Approvers can be either Budget Holders or not – depending on whether or not you wish to implement Budget Holders and Commitment Reporting. In addition all Approvers can either be users of the system or not – those who do not have access directly to the system will communicate with it via email. However, it is recommended that Budget Holders should have access to the system. You should decide initially whether you wish to base your Approvers on Budget Holders or non-Budget Holders (a nominated Approver associated with a range of Suppliers (Vendors)). Although it is possible to switch from Non-Budget Holder to Budget Holder based approval should you wish.
One of the principal benefits of using Budget Holders for Approval purposes is that you can examine, as part of the approval process, current commitments against each Budget Head in terms of expenditure to-date, existing orders in the pipe-line, and the amount of un-spent budget remaining – thus giving you greater control of your expenditure on a rolling basis.
Not all Orders/Invoices require Approval even if Purchase Approval is implemented system wide. Within the Purchase Approval process, there are facilities for exempting certain Suppliers (Vendors) – e.g. Electricity, Water, Rent, etc. and other Suppliers (Vendors) from whom you typically only procure small Items (e.g. Stationery, Refreshments, etc.) and who do not require Approval. This is achieved by selecting “Exclude from Approval” against such Suppliers (Vendors) when initially setting them up in the system. If “Exclude from Approval” is set to "On" for a Supplier (Vendors), then any Orders/Invoices for that Supplier (Vendor) will be automatically approved
By using the "Order Required" setting on the Supplier's (Vendors) Master Record you can enforce the entry of Purchase Orders against selected Suppliers (Vendors) which, if implemented, ensures that no Invoices from that Supplier (Vendor) can be processed without an Order having first been placed, with the Invoice subsequently undergoing an Invoice/Order Matching process. In the Invoice/Order matching process, if the Invoice exactly matches the Order in respect of all Lines, Quantities and Prices, then the Invoice is presumed to be approved and bypasses the Invoice Approval stage of the process.
You can also set both these parameters – “Exclude from Approval” and “Order Required” in the Supplier (Vendor) Defaults Settings section of “Setup”. Details hereunder.
Non-Budget Holders are linked to Suppliers (Vendors) – that is to say that if your Approval process is based on non-Budget Holders, then the initial Approver (if any) will be retrieved from the Supplier (Vendor) record when you prepare a new Order or Invoice. Budget Holders are linked to Budget Heads (BI Code) and if you have based your Approval process on Budget Holders, then the initial Approver will be retrieved from the BI Code nominated with the Order or Invoice. You can, however, if you wish, override this Approver when you subsequently complete and process the Order or Invoice by nominating an Approver of you own choosing at that stage.
Requesters (Requisitioners) are generally non-system users, such as field operatives, who raise Purchase Orders and who may not have access to the system – but also have the ability to communicate with the system via email. They are kept informed throughout as to the status of their Orders as it moves through the approval process. Budget Holders and Approvers can also be nominated as Requesters (Requisitioners).
In addition, please note that only a user with an “Administrator User Role” has the capability to add or change a Supplier’s (Vendors) nominated Approver and the “Order Required” setting on the Supplier’s (Vendors) record (and also the set up or the subsequent alteration of a Supplier’s (Vendors) Bank details for Payment purposes).
N.B. You should note that Purchase Invoices entered into the System via the “Batch Invoicing” entry option do not undergo Invoice Approval and will be posted directly to the Supplier (Vendor) Account as normal. In this way, you can facilitate the entry of Invoices for small amounts, or Invoices which do not require approval. This, however, is a security risk and might defeat the purpose of implementing Invoice Approval in the first place. So, if you wish all your Purchase Invoices to undergo the approval process, then you should remove the Batch Invoicing option from your Menus (or severely restrict its usage) - thereby requiring all Invoice processing to be carried out using the “Item Invoices” Menu option. Refer to Section 3. of the Article “How do I use the Client Administration System Layer to Add End Users and Control their Permissions?” which refers to the control of the Menu Options which various users can or cannot access.
2. Switching on the Approval Processes and Creating/Adding Approvers and Requesters:
The first task is to switch on Purchase Approval followed by the setup of the various approvers and budget holders You must have the appropriate permissions in your Menu Profile to access this function. In other words, the “Purchase Approver Setup” under Approvals in Purchases must be enabled for you in your Menu Profile.
The Approval Parameters are contained in the “Approval Settings” Tab of Company Details and Settings. Here you can “switch on” (i.e. implement) Purchasing Approval, or Payment Approval, or both. As explained in the introduction, you can implement Purchasing Approval either by non-Budget Holders (linked to Suppliers) or Budget Holders by ticking the appropriate “Approval Type”.
However, should you wish to nominate your own Approvers for both Order and Invoices, you can do this by ticking the box “Manual Approver Nomination Enabled”. This will allow you to override the system derived approver and nominate your own approver at the completion stage of the Order or Invoice. This nominated Approver must, however, have the same or higher financial authority as that of the system derived approver.
You can also over-ride/inhibit (system wide) Order and Invoice approval for small amounts. Key in this amount in the field provided. In addition, if the Order and/or Invoice received from the Supplier exceeds the pro-forma Order value by small amounts, you can inhibit it’s re-circulation for approval if the amount of variation is less than an amount you specify in the field provided.
Third party Invoices may originate from external sources such as OCR Scanning or some other integration such as EPOS. You can opt to have these Invoices go through the Approval process or not by ticking the appropriate box in these set of Parameters.
Approvers are set up as follows, and again, you must have the appropriate access permissions in you Menu Profile to carry out this setup and maintenance task;
To add a new Purchasing Approver, click on “New Purchase Approver” which will bring up the following window. Here, you can nominate an existing system user – in which case a selection drop down will be presented and his/her email address will be filled automatically. Or, you can nominate a non-system user, in which case you must enter his/her name, email address and the “Notify by Email” tick box is obligatory. If you opt for a System User, then you can, if you wish, un-click the “Notify by Email” tick box. In this instance it is assumed that the user in question has direct access to the Purchasing System and can review the Orders and Invoices grid and approve or otherwise from within the system.
Approvers operate in “chains” of ever higher financial approval authority. If James Smith is the default Approver and the Order or Invoice exceeds 200.00, then, as an Approver for that Order/Invoice he will be replaced by the Approver next in line. Obviously, this next in line must already be set up and have a financial approval level greater than the current one – but it doesn’t necessarily have to be the immediate next in line (Gerry James). It can just as easily be either of the “No Limits”. Equally if the Order/Invoice exceeds Gerry James’ 500.00, then he must be replaced by an Approver with a higher level of financial authority, and so on. However, all chains must contain a “No Limit” as a terminator. (In this instance of Budget Holder Approval, the “Route To” is redundant, as the system will examine all the Approvers against a Budget Head to find the one with the appropriate financial authority to become the Budget Holder Approver for the Order or Invoice).
Approval is based on the Nett Value of the Order or Invoice before any Tax is calculated.
If you wish to amend any of the details relating to a Purchasing Approver, Click on the “Actions” Drop Down on the right hand end of any Approver in the Grid.
We must now attach the Approvers to the BI Codes (Budget Heads) which will identify them as Budget Holders as well as Approvers. You can opt to have just one Budget Holder against a BI Code (in this example called "Cost Centre") by simply assigning one financial “No Limit” Budget Holder to the BI Code, or you can assign several Budget Holders, with varying financial limits, to a single BI Code. You can also assign a single Budget Holder to several BI Codes. Click on;
This screen shows a complete list of all the BI Codes (in this example the BI Code has been "named" as "Cost Centre") which have been set up in the system (for more information, refer to the Articles “How do I Implement Extended Business Analysis” and “How do I Produce my Extended Business Analysis Reports”).
The Column “Complete” tells you that some of the Cost Centres are incomplete in terms of assignment of Budget Holder Approvers or lack a “No Limit” budget holder and must be rectified. Now click on the “Manage” function, against a particular BI Code which will bring up the following window;
Click on any of the Approvers on the left hand side to assign him/her to this BI Code as a Budget Holder Approver. Click as many as you wish if you want Approvers (budget holders) with varying financial authorisation. Click on any of the entries on the right hand side to remove Budget Holder Approvers from the BI Code
In this instance there was a missing "No Limit" Approver, which should be rectified by clicking on Joe Bloggs or any of the other "No Limit" Approvers.
You may also want to set up Requisitioners (Requesters). These are the people from whom the request for the Order to be placed originate, and who will eventually receive the goods when they arrive. Generally speaking, they have no access to the system but can communicate via email. They are continuously updated as to the status of their order as it moves through the approval process right through Delivery and Invoicing. Anybody in the organisation can be a requester.
To set up your requesters Go To > Setup > Codes Maintenance > Requesters (under (Customers & Suppliers (Vendors)), which will bring up the following window;
To add a Requester, Click on the “Add New Requester”. To modify the details of an existing Requester, Click on the “Edit” button.
The Requester (Requisitioner) is now an optional field on the Order Entry screen;
And you can also access the Code Maintenance Window from here.
As mentioned in the Introduction, you can enforce Orders as a pre-requisite to Invoicing - and/or you can also exclude certain Suppliers (Vendors) from the Approval process (with the aforementioned exceptions regarding Utilities, Orders for small amounts, etc.). You can invoke both these rules at individual Supplier (Vendor) level. However, in the “Defaults” settings under “Company Setup” you can also invoke these rules, Company wide, by ticking either, or both, of the tick-boxes highlighted below. However, these company wide rules will only take effect for all new Suppliers from the point that you set these parameters to take effect – and will not have retrospective effect on existing Suppliers (Vendors). You can, of course, un-set either or both at the individual Supplier (Vendor) level.
3. The Order Approval Process for Budget Holders:
With Budget Holders an Order can only have one BI Code - shown here as "Cost Centre" - (with as many Items and General Ledger Codes as you want) as otherwise it would involve multiple Approvers at different times per single order which would prove unwieldy in practise. You can set up a default BI Code at the Supplier (Vendor) level if you think that this supplier is only going to supply orders to that single source - otherwise, leave it blank and the BI Code will be solicited at Order Entry stage;
On the Order, the BI Code (if not inherited from the Supplier (Vendor)) must be entered in the Order Header as it is inactive in the Drop Down in the body of the Order;
Instead the BI Code will be automatically inherited from the Header onto each line as the Order progresses. Only on completion, will the system decide which Budget Holder should be the Approver, based on the total value of the Order (if you have setup several Budget Holders with varying financial authority).
Provided the “Exclude from Approval” is set to “Off, after entering an Order for a particular Supplier (Vendor), the system, or rather the current logged in User, sends an email to the Requester (if any) as follows;
The Requester now has the opportunity to appraise the Purchase Order, and if he has any amendments, then he can send a return email describing the modifications he requires. As stated in the email, any changes which result in a new quantity or new value will result in the Approval process starting over.
The Approver is also sent an email asking him to approve the Order or Reject it. As with the Requisitioner, a pro-forma copy of the Order and its details is attached to the email;
The meaning of “Committed”, for each separate Budget Head, in Base Currency, at any point in time, is as follows;
The sum total of Un-invoiced Approved Order Lines Net Value [Net Price * Un-invoiced Quantity (Order Quantity less Invoiced Quantity) ], that is either delivered or undelivered, in the system,
Plus The sum total of Un-posted Approved Invoice Lines Net Value [Net Price * Invoiced Quantity ], currently in the system,
Minus The sum total of Un-Posted Supplier (Vendor) Credit Note Lines Value [Net Price * Credit Note Quantity ], currently in the system.
In summary, an order finally moves out of “Committed” status into “Actual” status when the Invoice it is associated with is “Posted” (not just when the invoice is processed and awaiting posting). Similarly, an Invoice which is not associated with an order moves out of committed status and into actual only when it is posted. Ditto for Supplier (Vendor) Credit Notes.
In the case of the Order above, the Budget Holder is already in trouble with a couple of Budget Heads, so he responds by rejecting the Order with a suggestion;
The Order is then rejected with the following note attached;
And the Requisitioner is likewise informed so that he can prepare a new Order for submission.
Had we decided to accept the Order instead;
The Order now is now shown as approved in the Orders Grid with your Note attached and awaits subsequent receipt of the Goods from the Supplier (Vendor);
The Requester (if any) is now sent an email telling him that his Order is now approved.
Had the Approver been a System User and the “Notify by Email” tick box was blank, then the approval process is as follows; If you are logged in as this User then you will find the required Approval functionality under “Actions” at the right hand end of the entry;
In the Grid, in the Column Approval Status, the words “Pending Approval” generally means that an email has been sent to the Approver, whereas “Pending your Approval” refers to a System Approver who will use the “Actions” Drop Down to effect the next step.
You must now send the Order to the Supplier (Vendor) via email by clicking on the Email Icon against the Order you wish to send;
Which will bring up the following window where you must enter the email address if it’s not already on the Supplier’s (Vendors) record;
4. The Invoice Approval Process for Un-Ordered Goods and Services:
This example deals with Invoices which arrive for which there is no Order, but which require Invoice approval. Obviously, if the “Order Required” Tick box is set to “On”, then the Invoice cannot be entered until the Order has been entered. Instead, you will get this message;
Only Invoices with the “Exclude from Approval” tick box set to “Off” (and also the “Order Required” set to “Off”) in the Supplier (Vendor) record will arrive here and need to undergo this process. However, if they are below the threshold set in the Approval Settings Tab of the Company Details & Settings then they will be automatically approved without undergoing this approval process. The same is true for 3rd party Invoices arising from external systems, if this tick box is left “Off” in the Approval Settings tab.
Follow the same procedures as you would for Order Entry. The Requisitioner field is not required in this instance. Enter the Invoice details and “Save”.
The same rules apply regarding the financial hierarchy of Approvers, and an Email will be sent to the Approver.
When the Invoice is Approved, it is now ready for “Posting”;
All of the foregoing equally applies to Purchase Debit Notes (i.e. Supplier (Vendor) Credit Notes).
5. The Combined Order & Invoice Approval Process:
The following procedures apply when the Order and the Invoice are both required to undergo approval. In this instance you will only arrive here and undergo the following process if there is an Order in the system which has or awaits approval, and “Exclude from Approval” is also set to “Off” in the Suppliers (Vendors) record. As before there are a couple of exceptions; If the Order is less that the minimum stated on the Approvals Parameter Settings, then it does not require Approval. Similarly, if the Invoice value is also less than this amount, then it does not require approval either. And, if the increase in value of the Invoice over the Order is less than the amount allowed on the Approval Parameter Settings, then re-Approval is unnecessary.
Enter the Order as described in 3. above and process it to the stage of “Approved”. The next stage is to “Receive” which you cannot do until the Order is Approved. Click on “Receive” and receive the Goods (full of partial) that you have received in good condition.
You can, here, amend the Quantities received, which might be less or more than that ordered - but in this instance we’re going to “Receive All”.
The Order now moves to the Deliveries screen, where you can Invoice it, or not, from the Drop Down under Actions of the right hand side of the grid entry.
In this instance, because the Invoice exactly matched the Order in terms of Quantities and Values, and the Order has gone through approval successfully, the Invoice is automatically approved. Had the value increased by more than that allowed in the Approval Settings, then the Invoice Approval would re-begin.
In addition, it may be the case that the physical Invoice received from the Supplier (Vendor) differs from the Order – either in Quantity (excluding partial deliveries discussed below) or Value. If so, during the Invoicing process, you can amend the Price by double clicking on the field and amending it so that it now matches the Suppliers (Vendors) Invoice. You cannot, however, amend the Quantity in this instance. You can also add lines for other services such as Transport and so on. The nett result is that the amended Invoice, if the Value increase is greater than that specified in the Approval Settings, then the Invoice will go for re-approval before it is processed further. If there is a Quantity difference between the Supplier’s (Vendors) Invoice and what was received in good condition (i.e. what the GRN shows) then you must take action to get a new modified Invoice from the Supplier before progressing this delivery.
In this next example, we’re going to examine the situation whereby there are multiple Deliveries and multiple Invoices against a single approved order. Enter the multi-line Order and process it through to the Approval stage. Receive 2 of the Items on Line 1 of the Order;
You can now go to the Deliveries Tab and process an Invoice, when it arrives, or not. In other words, you can first receive other shipments;
You have now partially received two of the Line Items ordered. Let’s say there is a delay on the remainder of the goods and the Supplier (Vendor) decides to Invoice you for your deliveries to-date at this stage. When you receive the Supplier (Vendor) Invoice go to the Deliveries Tab and click on “Invoice”.
You will now see that the two deliveries have been amalgamated and ready for Invoicing. If you receive further shipments they will also be added and amalgamated. You can now Invoice these Deliveries by clicking on “Save” on this screen. Again, because the Invoice agreed with the Order in terms of Value and Quantity, the Invoice does not undergo Approval but now appears under “Item Invoices” awaiting Posting. The accompanying “Notes” Icon will detail the Approval process.
N.B. Orders and Invoices can be re-submitted for Approval (in case of a lost email or whatever) by clicking on the re-submit for Approval at the bottom of the Order;
Or from here;
The same applies to Invoices.
N.B. Should the Budget Holder become unavailable for an extended period then you can assign another Approver, in Budget Areas;
to his Budget Heads (all of them). Afterwards, when you’ve made these changes, you should re-submit each individual Order or Invoice for re-approval. The subsequent Emails will then be forwarded to the new Budget holder.
Equally, should one of your Requisitioners be absent for a period of time, you can, if you wish, replace him/her with someone else on any of the outstanding Orders or Invoices and re-submit them for approval.
6. Manually Nominating an Approver:
then regardless of what the system has derived in terms of the relevant approver, at the end of an Order entry or Invoice entry, when you click on “Save”,
then you will be presented with the following window;
Choose you Approver from the Drop Down (or not) followed by “Submit for Approval”. This new approver will now replace the system derived one for this Order/Invoice before starting the approval process described above.
7. Budget Holder Reporting and Dashboards:
There are two Reports provided with the Budget Holder Approval process. The first is a list of the Budget Holder Approvers, the BI Codes for which they are a nominated approver and the Orders and Invoices awaiting progress;
The second shows the current status of expenditure against a variety General Ledger and BI Codes detailing Actual Expenditure To Date, Commitments, Budgets and the Amounts available for further expenditure.
A new Dashboard provides a high level view of actual and committed expenditure versus budget year to date. This is an excellent visual of the overall committed and actual spend relative to the budget and whether there is currently under or over spend in a particular area/period and the overall trend:
You can drill down further in the dashboard by choosing a particular cost centre and then drilling into the monthly position. The dashboard also provides a breakdown of the Purchase Orders and Invoices related to the expenditure and contains a summary of the expenditure by approver by BI Code.