Procurement compliance: Best practices for reducing risk and maximizing value

Procurement compliance is a high-priority line of defense for any business, yet failures are surprisingly common. According to Navex's latest State of Risk & Compliance Report, half of respondents said their organization experienced at least one compliance issue in the past three years. When purchases occur outside of approved channels, you're exposed to a range of risks, including budget overruns, regulatory fines, and serious security vulnerabilities.

A strong compliance strategy isn't just a defensive move; it's a smart way to maximize value from your spending by improving efficiency and creating stronger supplier relationships. The challenge lies in the fact that modern purchasing involves multiple teams, including finance, legal, and IT. Join us as we explore what compliance is, why it’s important to your organization, and how to set up a solid compliance framework.

What is procurement compliance?

Procurement compliance is the process of ensuring business purchases follow established rules, like internal policies created by your company and external regulations required by law. It's about making sure every dollar is spent correctly, transparently, and with the proper approval.

Procurement compliance gives finance leaders visibility into spending, enables legal teams to conduct due diligence on contracts, and helps IT and security teams check new suppliers for potential risks. When done right, compliance shifts procurement from an administrative task to a driver of value and security for your entire organization.

Procurement compliance covers several key areas:

• Multi-team approvals: Many purchases require sign-off from multiple departments. Compliance makes sure requests are automatically routed to the right teams—like legal for contract review, IT for security checks, or finance for budget confirmation—before a purchase is made. Zip’s procurement platform is designed to manage these complex, multi-step approval chains automatically.
• External laws and regulations: Your business must follow all relevant local and international laws. Laws can include data privacy standards, such as GDPR, financial regulations like Sarbanes-Oxley (SOX), or industry-specific requirements. A compliant system helps maintain the detailed audit trails necessary to prove compliance with these standards.
• Internal purchasing policies: These are the specific rules your company sets for compliant goods and services purchasing. This includes everything from spending limits and preferred supplier lists to the requirement that all purchase requests start through a single intake system.
• Supplier risk management: This area involves screening and monitoring suppliers to protect your business. A compliant process helps encourage proper supplier onboarding, involving legal and security teams early in contract reviews to mitigate third-party risk.

Why is compliance important in procurement?

Procurement compliance is important to a company's financial health and integrity. It provides a framework to make sure every purchase is transparent and approved. A strong program unifies teams like finance, legal, IT, and security, giving them the visibility they need to control spending and manage risk effectively. Procurement compliance is important because it:

• Avoids penalties and fines: Following external laws and industry regulations is non-negotiable. Compliant processes help you meet legal requirements and avoid penalties or fines.
• Ensures you’re following contracts: Compliance confirms that all purchases align with the terms negotiated in supplier contracts. This prevents surprise fees and guarantees you receive the agreed-upon pricing and service levels.
• Improves ease of auditing: Centralized and automated procurement systems create a detailed digital audit trail for every transaction, making it simple to provide documentation for successful internal or external audits.
• Increases efficiency: By simplifying and automating approvals, a compliant process shortens cycle times and reduces manual work. It makes it easier for employees to get what they need while ensuring all necessary reviews are completed. With Zip's flexible, no-code workflows, you can automate any approval process to boost efficiency.
• Improves spending: Compliance provides real-time visibility and control over company-wide spending, helping you eliminate unauthorized spending, reduce duplicate purchases, and spot cost-saving opportunities.
• Prevents fraud and corruption: Clear, enforceable purchasing policies and approval workflows create transparency. This process makes fraudulent activities harder to achieve, like fake invoices or kickbacks.
• Protects your reputation: A public compliance failure can harm your brand and erode customer trust. A transparent procurement process demonstrates corporate responsibility and protects your company's reputation.
• Reduces supplier risk: A compliant process includes a formal review of all new suppliers by security, legal, and other stakeholders. This preventative step improves supplier compliance and helps you identify and prevent potential third-party risks.

Challenges of procurement compliance

Maintaining purchasing compliance is important, but it presents some challenges for businesses. Modern companies are complex, involving multiple teams, systems, and a constantly changing regulatory landscape. As companies grow, these challenges can make it difficult to enforce policies regularly across the organization.

Common procurement compliance challenges include:

• Balancing compliance with flexibility and efficiency: Overly rigid compliance processes can delay business operations and frustrate employees. The challenge is implementing effective controls that don't create delays or prevent teams from getting the resources they need.
• Cost of compliance: Implementing the tools and processes for compliance requires an upfront investment. However, this cost is often offset by the savings created by increased visibility, control, and efficiency.
• Cybersecurity threats: Poorly vetted software or suppliers can create security vulnerabilities. Gaining full visibility into IT spending is a top priority for security teams trying to reduce shadow IT and protect the business.
• Wrong or incomplete data: Data spread across different systems or entered manually is often inconsistent or incomplete. This can lead to unreliable reporting and make it difficult to forecast with confidence.
• Integration with existing systems: Companies often rely on various systems, like ERP systems, for finance and accounting. Your procurement solution must be able to connect and sync with these tools.
• Keeping up with regulations: Laws and regulations related to finance, data privacy, and trade are constantly changing. It's not always easy to keep your processes up-to-date and compliant in all the regions where you operate.
• Lack of transparency and data visibility: When purchase requests live in emails and spreadsheets, there's no single source of truth. This lack of visibility makes it impossible for procurement teams to effectively control costs.
• Managing supplier risk: Every new supplier introduces potential risk, and getting legal and security teams involved early enough can be difficult. Without a streamlined process, unvetted suppliers can expose the company to risks.
• Manual processes and human error: Routing approvals, tracking requests, and coding invoices are time-consuming and prone to human error. Manual mistakes can lead to compliance gaps and incorrect payments.

How to set up a procurement compliance framework

Building a strong procurement governance and compliance framework involves defining clear rules, implementing the right systems, and continuously improving. This setup helps you reduce risk and maximize the value of your company's spend. It's about creating a roadmap that's easy for everyone to follow.

Assess your current state

Start by mapping out how purchases are currently requested, approved, and paid for. Identify where the official process breaks down and where teams are using workarounds, such as shadow IT or unapproved suppliers. Consider talking to stakeholders across finance, legal, procurement, and IT to identify their primary pain points and concerns.

Define your policies and procedures

Once you identify gaps, establish purchasing policies to address them. Define who can approve purchases, set spending thresholds, and create guidelines for when legal, IT, or security teams need to be involved in a review. The goal isn't to create bureaucracy but to provide a clear set of rules that are easy for everyone to follow. 

Communicate and train

Communicate updated policies across your organization, explaining what's changing and why. Highlight how it benefits employees, making it faster and easier for them to access needed resources.

It's also a good idea to offer training tailored to different roles, including requesters, approvers, and administrators, to make sure everyone understands their responsibilities.

Implement systems and controls

Manual processes are a primary source of compliance failures. A procurement platform can be a game-changer here, automating policies and establishing a single intake for all requests. By following this approach, you can make sure every request goes through the proper approval workflows and that all necessary stakeholders have visibility. 

Choose a system with a user-friendly experience to encourage the adoption of your policies. The easier the system is to use, the less likely employees are to look for non-compliant workarounds. The system should also integrate with your existing ERP to ensure a smooth two-way flow of data for complete visibility.

Monitor and measure

You can't improve what you don't measure. Continuously monitor your procurement process and track key performance indicators (KPIs) to check if your compliance framework is effective. Use reporting and dashboards to spot potential savings, control unauthorized spending, and flag opportunities for risk mitigation.

Metrics for measuring procurement compliance include:

• Contract compliance: This measures the percentage of your spending with contracted suppliers conducted by the negotiated terms. It helps you secure the savings you negotiated.
• Invoice to PO matching: This tracks the percentage of invoices that match the corresponding purchase order. A high match rate indicates that spending is happening within pre-approved budgets and reduces invoice processing time. Zip's Procure-to-Pay solution further streamlines this process with AI-assisted matching to eliminate tedious tasks.
• Process compliance: This measures how often employees follow the established procurement workflow. You can track it by looking at the percentage of purchases made with an approved purchase order.
• Spend under management: This is the percentage of your organization's total spend that goes through your approved procurement process. A higher percentage indicates greater visibility and control.
• Supplier count: This is the total number of active suppliers your company is paying. A sudden or uncontrolled increase can be a sign of scattered purchasing or a lack of oversight.

Refine and adapt

Procurement compliance isn't a one-and-done deal; it’s an ongoing commitment. Use the data you collect from monitoring to identify areas for improvement in your framework. Your business will change, new regulations will appear, and your processes must adapt.

Regularly request feedback from employees to understand what’s working and what isn’t. This improvement cycle ensures your procurement process remains efficient and effective.

Best practices for managing procurement compliance

Once your framework is in place, maintaining procurement compliance requires consistent effort. Adopting procurement compliance best practices keeps your processes running smoothly.

Set up effective internal controls

Strong internal controls are the basic foundation of compliance. They include defining roles and responsibilities, as well as establishing approval hierarchies for all purchases. Controls make sure that no single individual has unchecked authority over a transaction, which is essential for preventing fraud and errors.

Be thorough when vetting new suppliers

Every new supplier introduces potential risks, making a thorough screening process key. Make sure legal, security, and IT teams have the opportunity to review new suppliers. Proactive due diligence helps you assess everything from a supplier’s financial stability to security posture.

Prioritize risk management

Make risk orchestration a central part of your procurement process by identifying, assessing, and reducing potential risks. For IT and security teams, this means gaining full visibility into spending to reduce shadow IT and duplicate suppliers. 

Provide ongoing training as regulations shift

As industry regulations and company policies change, provide ongoing training to keep employees informed. This ensures that everyone involved in the procurement process understands the latest requirements and can perform their jobs.

Leverage technology and automation

Manual processes are slow, inefficient, and can cause errors. Use a procurement orchestration platform to help enforce your policies automatically, direct approvals to the right people, and create an audit trail. Zip’s platform unifies the entire purchasing lifecycle, from the initial request to the final payment, all in one spot.

Orchestrate compliance management with Zip

Establishing a strong procurement compliance framework is about creating a clear, efficient, and transparent process your business can rely on. This approach requires unifying teams, simplifying approvals, and providing visibility into spending to mitigate risk and drive value.

Zip makes it easy to build and manage a world-class compliance program. By providing a single front door for all purchase requests and automating complex approval workflows, Zip helps ensure that every purchase is compliant. Request a demo to see how Zip can help you gain control over spend and risk.