A purchase requisition is an internal document created to initialize the purchase of goods and services. The purchase requisition is written and submitted to the relevant authority who approves the requisition. It’s from the purchase requisition that a purchase order is generated and sent to the supplier. A purchase order is legally binding, but the purchase requisition is an internal control document.
The Importance of a Purchase Requisition
A purchase requisition reduces the chances of fraudulent procurement practices by creating a paper trail for the purchase process. Employees who need goods and services for their departments cannot engage directly with suppliers. Instead, they create the requisition request to the procurement or finance department.
A formal process kicks off to verify the need for the goods or services, as well as the quantities required. They can approve the requisition as it is or request amendments if mistakes are noted. The requisition is approved only after the finance department assures the availability of funds for the purchase. Doing so ensures that various departments operate within the budgets approved for the year.
Purchase requisitions also come in handy during audits. The paperwork shows that the organization has proper internal controls, and that procurement is based on actual organizational needs and not on schemes to pilferage resources.
Purchase requisitions also help to ensure that the company gets the best value when sourcing goods and services. All purchase requisitions get sent to a central procurement office. The procurement office is then responsible for evaluating offers from various vendors and settling on the best. They take advantage of all possible discounts and the most favorable payment terms. The organization can also develop useful long-term working relationships with certain vendors to enable bulk purchases and long-term contracts.
Steps of Purchase Requisition Process
The purchase requisition process is originated by a person within the department in need of goods or services. They are responsible for filling out the requisition form correctly and accurately. Organizations will normally have a standard purchase requisition. The form will indicate the following;
- Name and Department of the Person Filling the Form
- The Date
- Name of products or services needed
- Item descriptions, including quantities and prices
- Reasons for purchase
- Name of the Supplier
The requisition gets sent to the relevant approval department. A purchasing agent verifies that the form has been filled out correctly. They might send it back for corrections or clarifications. Once ready, the requisition gets sent to the finance team.
The finance team must ensure that the purchase request does not exceed the allocated budget for that department. Once everything is in order, a purchase order gets created.
Need for Automation of Purchase Requisitions
The purchase requisition process requires meticulousness to be truly effective. This can be difficult to achieve in a big organization with tens of suppliers and hundreds of thousands of requests each year. Relying on paperwork, spreadsheets, and emails fragments the workflow too much. Automating the purchase requisition process through procurement software presents numerous benefits.
Faster Approvals
On a purchase requisition platform, you can set up custom workflows for various departments. The approval process can also be customized for purchase requests of different amounts. On the software, notifications will be set up so that the persons supposed to approve requests get notified immediately after an employee submits one. The approval process will also only involve a few clicks as opposed to sending out emails or signing off on physical documents. To create transparency, employees can track the status of their purchase requisitions.
Cost Reduction
The use of purchase requisition software can greatly minimize costs in the process. Elimination of paperwork through automation can reduce the number of staff needed in the procurement and finance departments. A good internal controls system where all communication is stored and available for review also eliminates arbitrary spending.
Enhanced Compliance and Control
Automating the purchase requisition process makes it easier to abide by internal company policies and any other applicable statutory requirements. The workflow on the software is customized to suit the internal controls. Requests are routed to the appropriate persons automatically depending on the department. The database within the software also ensures that reviews can be undertaken months down the line.
Ability to Analyze Business Spend
The use of procurement software for purchase requisitions enables the business to get proper visibility into their spending. They can easily query and generate reports in real-time. Deep analysis helps identify areas of wastage and inefficiency, which informs decision-making. For instance, it might be revealed that two departments are making separate requisitions for goods and services that could be shared between them. It might therefore be better to make a common requisition. If a given department is constantly going over the budget, the budget-making process might be put up for review.
The Automation Process
To automate your purchase requisition process, it’s important to map out the process first. You must establish people with the authority to originate a requisition in various departments. The next part is to figure out what approvals are necessary and the responsible parties. The rules on budget limits and approved vendors must also be input into the software. The company must also prepare digital forms to be used on the platform.
If your organization is seeking a highly customizable software solution for your purchase requisitions, check out ProcurePort’s end-to-end procurement solution. ProcurePort is the world’s leading provider of e-procurement software. Get in touch for a demo today.
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