What’s the Difference Between Policy and Procedure?

Policies and procedures are all around us all the time. Formal company policy is developed by management and documented in a company policy manual.  Informal policy evolves from an organization’s culture and is undocumented, which makes them harder to learn and change.

What’s A Policy?

A policy communicates an organization’s principles.  Companies have many different types of policies.  In marketing there is a pricing policy on how customers will be charged for their products.  Accounting will have an accounting policy on how reimbursement is issued, depreciation is booked, or purchase decisions are made.  Your policy on quality (a quality policy) is a required element of an ISO 9001 quality management system.

Company policy is used to influence decisions that employees must make.  We use company policy as a guide to company decision making.  Unfortunately, company policy is also used to make rules (think about an employee policy from your Employee Handbook) like a no smoking policy, policy against drinking, or policies for how to dress on the job. Employee policy is focused on office rules that are used to support your management principles.

Procedure Policy

But a company policy can also be seen as a mission statement, as part of a business procedure (think an accounting policy and procedure manual).  A policy in a procedure acts as a mini-mission statement containing the customer of the policy, it’s purpose, and a key performance indicator (KPI) to communicate how users know the procedure is working.

An example Accounts Receivable Procedure Policy:

Accounts Receivable personnel shall ensure that all outstanding customer invoices are paid in a timely manner.

In the Accounts Receivable policy you see the customer is the Accounts Receivable personnel. The purpose is to ensure outstanding customer invoices are paid and the KPI is a timely manner. The procedure needs to define what timely manner means.  A timely manner could be 30 days today (net 30) and 20 days next quarter (net 20), which provides a process improvement objective of 33%.

What’s A Procedure?

Company procedures assist companies in building consistency between each and every employee.  Procedures define a series of steps, actions, or methods to be followed as a consistent and repetitive approach to accomplish an end result.  Company procedure answers the “how” questions as in “how do you collect receivables.”

An example Accounts Receivable Procedure:

1. Send the first notice-invoice immediately (same day) as the sale.
2. Produce a receivables aging report.
3. Send a second notice to all invoices outstanding for 30 days.
4. Call all invoices outstanding for 45 days.
5. Send a third notice to all invoices outstanding for 60 days.
6. Call all invoices outstanding for 75 days.
7. Send all invoices outstanding for 90 days to collections.

A procedure could be something as simple as a checklist.  The goal of a procedure is to provide consistency.  Using simple checklists is the easiest way to begin to get consistency in your business.

The Difference between Policy and Procedure

A policy communicates an organization’s principles.  A company procedure assists companies in building consistency.  The main difference between a policy and procedure is that the policy communicates a direction whereas a procedure communicates the steps you take in the direction.  Company policy answers the “what” and your company procedure answers the “how” question.

You can view a free sample procedure at our samples section.

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Bizmanualz has been at the forefront of deploying business best practices since 1995 delivering Policies, Procedures and Forms; quality systems implementation; and strategic business process improvement to help business owners achieve the growth and expansion they envision.

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Originally published in 2011 by Bizmanualz, Inc. under the title What’s the Difference Between Policy and Procedure?. All rights reserved. Reproduction permitted with attribution only. www.bizmanualz.com