The procedures for buying goods or services were explained in an earlier chapter but a brief reminder may be useful here.
Expenditure by a business must be properly authorised. If there are no rules regarding authorisation of expenditure, there would be nothing to stop any employee using business resources to make any purchase for any reason.
The rules for authorisation vary from one business to another, and it is important to know who can authorise different types and amounts of expenditure.
Expenditure should not be approved for payment unless there is evidence that the initial purchase was properly authorised. Proper authorisation is normally evidenced by a signature from a suitably responsible person, such as a manager. This authorising document is often called a purchase requisition. Following authorisation, a purchase requisition becomes an authority to spend.
A business may purchase goods or services in different ways.
Once authority has been obtained, an item can be ordered verbally, by telephone. For example, suppose that there is flooding in a washroom due to a blocked drain. After authority has been obtained to have the fault repaired, a plumber can be contacted by telephone.
Occasionally, an item may be purchased via the internet after authority has been given, although the person making the purchase will probably be required to pay immediately by credit or debit card and then make a separate claim for reimbursement, perhaps by a petty cash claim.
Business to business transactions also take place over the internet with customers buying from suppliers.
For expensive items, a business may ask one or more suppliers to submit a price quotation. The business specifies the goods or services that it wants to purchase and suppliers who are invited to 'bid' for the work each submit a price quotation. One of these quotations is then approved - usually the lowest-priced bid, although other factors such as quality of product or service and delivery dates are also considered.
A common method of ordering goods and services from a supplier is to prepare and submit a written purchase order.