The spend cycle is the process from deciding to purchase a good or service to paying for it. It involves obtaining authorization, issuing a purchase order, accounting for the receipt of the item, and scheduling payment. The number and type of steps vary based on research complexity and payment policies.
The spend cycle is a type of process that helps define what happens from the moment a business or consumer decides that the purchase of a particular good or service is necessary to the point at which the purchase is paid for in full. The number and type of steps included in the cycle will vary, based on the complexity of your research and ultimately obtaining authorization to make your purchase. The process can be further complicated based on the policies and procedures that are involved in deciding when and how to make payment for such purchases.
For many businesses, the spending cycle begins with granting permission to make a particular purchase. Typically, the party wishing to make the purchase must send what is known as an inquiry form to an agent or purchasing department. If the agent reviews the requisition and finds that the requested item falls within the company’s pricing guidelines and budget restrictions, the next step in the cycle is to issue a purchase order number. At that point, the party who submitted the original request may contact the authorized seller and place the order, noting carefully that the purchase order number assigned by the buying agent must be included as part of the details found on the invoice for the order. ‘order.
Once the order has been placed and the requested item has been delivered, the next step in the spend cycle is accounting for the receipt of the item and assigning the cost to a specific department or division within the business structure. Depending on the type of business involved, the item may be placed in active inventory until it is actually dispensed to a specific department. For example, raw materials used in the creation of goods that the company offers for sale may be held in a company warehouse until they are released and billed to the department that serves as the first link in the manufacturing process.
The final stages of a spending cycle involve scheduling payment for purchased goods. In some cases, the cycle is very short, such as when payment must be offered upon delivery. Other times, this late part of the spend cycle may organize current invoices in progress according to due dates assigned by vendors, with an accounts team reviewing and approving each invoice for payment. At that point, payment is scheduled to occur by the due date indicated on the invoice. Depending on company policies, this payment may be in the form of an electronic transfer made to the seller’s account or a paper check that is prepared and mailed to the remittance address provided by the seller. Typically, the spending cycle is considered complete once the payment has been processed and authorized by the issuing bank.
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