Blog · Approvals and authority
Approval limits and the delegation of authority
A delegation of authority is a written list of who may commit the business to spending, and up to what amount. Each person gets a limit, measured before tax; anything above it goes up a chain until it reaches someone whose limit covers it. The document only protects you if the limit is checked at the moment money is committed, not looked up afterwards.
What a delegation of authority is
Every business has one, even if nobody has written it down. The owner can sign anything. A manager can probably order stationery. Somewhere in between sits a line that people sense rather than know.
A delegation of authority, sometimes called a DoA or an authority matrix, makes that line explicit. It names roles, not just people, and gives each one a limit for committing spend on the business’s behalf. In purchasing, the commitment is the purchase order: once a supplier has it, the business has agreed to pay.
Writing it down does three things. New managers know what they can approve without asking. Requesters know where their request will go. And when an auditor or a new finance lead asks who agreed to a purchase, there is a rule to check the answer against.
Limits by amount, excluding tax
Most limits are set on the total excluding tax. There are good reasons for that. A VAT-registered business normally reclaims the VAT it pays, so the net amount is the real cost. Rates also change, and a limit set on the net figure means the same thing whichever rate applies. It keeps the rule simple for a group that buys in more than one country, too.
Two practical rules sit alongside the amount. First, the limit applies to the whole request, not each line, so a large order cannot be approved line by line. Second, a requester should not split one purchase into several smaller ones to stay under a limit. A good policy says so in plain words, and a good process makes splitting easy to spot.
If your business is not VAT registered, or cannot reclaim VAT on some purchases, check with your accountant whether a limit including tax makes more sense for you.
A worked example with four levels
Take a small manufacturer with a simple chain. The figures are illustrative, in pounds; scale them to your own business and currency.
- The requester’s own limit, £250. A site supervisor can order consumables up to £250 without anyone else signing. Below that, the cost of asking outweighs the risk.
- Manager, up to £2,500. Anything above £250 goes to the supervisor’s manager. A £900 order for replacement tooling stops here.
- Director, up to £25,000. A £12,000 request for a new compressor passes the manager, who cannot cover it, and goes on to the operations director, whose approval is final.
- Board or owner, above £25,000. A £60,000 machine goes through the manager and the director in turn, and the owner, or the board, decides.
The matrix in a table
Laid out as a matrix, the same chain fits on one page. Many businesses add a column for the kind of spend, because a director may sign a £20,000 equipment order but not a contract of the same value.
| Role | Limit (excluding tax) | Typical spend | Above the limit, goes to |
|---|---|---|---|
| Requester | Up to £250 | Consumables, small tools | Their manager |
| Manager | Up to £2,500 | Repairs, routine stock items | The director |
| Director | Up to £25,000 | Equipment, larger services | The owner or board |
| Owner or board | Above £25,000 | Capital purchases, long contracts | Not applicable |
Different limits by entity and site
In a group, one matrix rarely fits every company. A trading subsidiary with thin margins may want lower limits than the parent. A site manager at a large plant may need more room than one at a small depot, simply because the routine spend is bigger.
The usual answer is a group-wide policy with a matrix per entity, and sometimes per site. The same person can hold different limits in different companies: a group finance director might approve up to £50,000 in the main operating company and nothing at all in a subsidiary they have no role in. Keep the structure the same across the group, so people recognise it, and vary the numbers.
What happens above the top limit
Every matrix needs a final step. Something will eventually exceed the highest named limit, or arrive while the person who holds it is away. Decide in advance who decides then: the owner, the board, or a small named group with authority over the whole business.
Write down how that final decision is recorded, too. A board minute or a signed note is fine; a verbal yes in a corridor is not. The largest commitments should carry the clearest record, not the weakest.
A limit on paper and a limit that is enforced
Here is where most delegations fail. The document says a manager may approve up to £2,500. But the purchase order is typed by whoever needs the goods and emailed to the supplier, and the manager hears about it when the invoice arrives. The limit existed; nobody checked it at the moment the business was committed.
A limit is only a control if it is checked before the order is sent. That means the request carries its total, the route is worked out from that total and the matrix, and the order cannot go out until the right person has said yes. Checking afterwards finds problems; it does not prevent them.
It also means the requester cannot approve their own request, even if their limit is high enough. That is the heart of segregation of duties in purchasing.
How often to review limits
Review the matrix at least once a year, and whenever something changes: a new entity, a reorganisation, a senior leaver, or prices rising enough that routine orders now need a director. Directors approving small repeat orders all day is a sign limits are too low. Large orders that nobody senior has seen is a sign they are too high.
Keep each version with its date. When someone asks why an order was approved, the answer depends on the matrix in force that day, not today’s. For a step-by-step way to set the numbers, see how to set approval limits.
Questions
What is a delegation of authority in purchasing?
It is a written record of who may commit the business to spending and up to what amount. Each role has a limit, and anything above it goes to someone with a higher one.
Should approval limits include VAT?
Most businesses set limits on the amount excluding VAT, because a VAT-registered business normally reclaims it and the net figure is the real cost. If you cannot reclaim VAT, confirm the right basis with your accountant.
Who approves a purchase above the highest limit?
Whoever the delegation names as the final step, usually the owner, the board or a small senior group. Decide this in advance and record each decision in writing.
Can someone approve their own purchase request?
They should not, even if their limit covers it. Separating the person who asks from the person who approves is a basic control, and one of the easiest to check.
How often should approval limits be reviewed?
At least once a year, and after any change to the business’s structure, senior staff or typical prices. Keep the old versions, so past approvals can be checked against the rule in force at the time.