How to create a procurement policy: a practical guide for SMEs

Most small and medium-sized businesses buy reactively. Someone needs a new software licence, they google a supplier, sign a contract, and move on. There is no written policy, no defined process. And honestly, that works fine when you have five contracts. But once you pass twenty, things start to unravel. Different teams buying from different suppliers for the same service. Contracts quietly renewing for another year. Volume discounts left on the table because nobody has a complete picture of what you actually spend.

Research shows that external purchasing accounts for 43 percent of total business costs on average (Bain & Company), and that 10 to 20 percent of targeted procurement savings are lost to uncontrolled spending (Hackett Group). A procurement policy fixes that. And no, it does not have to be a bureaucratic nightmare.

What is a procurement policy?

Forget the 50-page documents that large corporates produce. For an SME, a procurement policy is one or two pages that answer four simple questions:

Who may purchase what? Can every team lead sign contracts, or only the owner?
Above what amount do you need approval? A £200 office chair is different from a £15,000 IT infrastructure contract.
How do you select suppliers? Do you always get two quotes, or just go with whoever answers first?
When do you review existing contracts? Once a year? Before every renewal?

That is it. A procurement policy is a set of purchase conditions and rules your team follows when buying goods or services. It does not replace common sense. It supplements it.

Think of it as the difference between a restaurant with a recipe book and one where every chef improvises. Both can produce good food. But only one delivers consistent results.

Three signs you need a procurement policy

1. Multiple people buying the same thing from different suppliers

This is called maverick buying, and it is more common than most business owners realise. Your marketing team uses one design agency, your product team uses another, and neither knows about the other. You are paying twice, with no volume leverage and no consistent quality.

2. Contracts that silently renew because nobody tracks them

Automatic renewal clauses are standard in most B2B contracts. If nobody in your organisation tracks notice periods, you will find yourself locked into contracts for another year, sometimes at increased rates, simply because you missed a cancellation deadline.

3. No overview of total supplier spend

If you cannot answer the question "how much did we spend on IT suppliers last year?" within five minutes, you have a visibility problem. According to Weshare (2025), 95 percent of organisations lack full visibility into their contractual obligations. Without spend analysis, you cannot negotiate better rates, identify overlapping contracts, or spot suppliers who have quietly increased their prices year over year.

Five steps to create a procurement policy

Step 1: Map your current spend

Before you write any policy, you need to know what you are actually buying. Pull your accounts payable data for the last twelve months. List every supplier, what they provide, and what you paid them. Sort by total annual spend. This exercise alone tends to produce surprises: duplicate subscriptions, forgotten contracts, and suppliers you did not even know you still used.

Step 2: Set approval levels

Define who can commit to what. A simple three-tier structure works for most SMEs:

Under £500: any team lead can approve directly
£500 to £5,000: requires line manager sign-off
Above £5,000: needs director or owner approval

Adjust the thresholds to your business size. The point is not to slow things down, but to make sure someone with the right context reviews larger commitments.

Step 3: Define supplier selection criteria

For purchases above your first threshold, require at least two quotes. Decide what matters: price, delivery time, payment terms, references, insurance coverage. Write it down. This prevents decisions based purely on who picked up the phone first. Read more about structured supplier evaluation in the glossary.

Step 4: Establish contract review moments

Every contract should have a review date in someone's calendar, ideally three months before the notice period expires. This is the single most effective thing you can do to avoid paying for services you no longer need. This is a core part of the contract lifecycle and your broader contract management process.

Step 5: Pick one person responsible

A procurement policy without an owner is a document nobody reads. Assign one person, it does not have to be full-time, who is accountable for maintaining the supplier overview, enforcing approval levels, and flagging upcoming renewals. In most SMEs, this is the office manager, the finance lead, or the owner themselves.

What a procurement policy is not

It is not bureaucracy for the sake of bureaucracy. It is not a procurement department. You do not need to hire anyone or create new roles. A procurement policy is simply guardrails so your team can still act quickly, but within agreed boundaries.

The goal is contract compliance: when a contract comes up for renewal, someone knows about it, someone evaluates whether the terms are still fair, and someone makes a deliberate decision to renew, renegotiate, or switch.

Put your policy into practice

Writing the policy is the easy part. Making it stick is where most SMEs struggle. This is where contract management software makes a real difference: automated alerts before notice periods expire, approval workflows that enforce your thresholds, and a central register where every contract lives in one place instead of scattered across inboxes and filing cabinets.

For more practical steps on managing your contracts effectively, read 5 tips for smart contract management.

A procurement policy does not need to be perfect. It needs to exist. Start with one page. Refine it after six months. The companies that waste money on procurement are not the ones with imperfect policies. They are the ones with no policy at all.

Sources

Chartered Institute of Procurement & Supply (CIPS), "Procurement Policy Guide for Small Organisations," cips.org
UK Government, "Buying for your business: procurement policy basics," gov.uk/guidance/buying-for-your-business
Bain & Company, "Procurement in Mid-Market Companies," bain.com/insights