Chances are your organization, no matter its size, uses a purchase requisition and purchase order process to manage spending in some form. The purchase requisition and purchase order process in procurement, being digitized and automated, can provide your business with a number of key benefits. This will become especially clear when it is time to audit your financial accounts and you discover you have a clear paper trail to follow.
To better understand the process before reaping the intended benefits, we have broken down the procurement process for you step by step below.
The Purchase Order and Purchase Requisition Process
A purchase order is a commercial document created by the buyer which officially confirms an order and authorizes the purchase transaction for goods or services from your intended supplier.
Purchase orders are useful as they determine the clear expectations of your company which can be used to check the order is delivered as agreed. They are legally binding, and ultimately can help you stay in your budget, assist with your financial audits, and assist your company track and manage orders efficiently.
Step 1: Creating The Purchase Requisition
The first step is to create the purchase requisition, which is different to the purchase order. The purchase requisition is a form that your company produces internally and submits to your company’s purchasing department, providing a list of the items it wants approved by the purchasing department. It is not until the purchase department has approved the requisition that a purchase order will be generated.
The benefits of purchase requisition cannot be overstated. These benefits include the ability to isolate your strategic vendors and consolidate the total number of vendors, saving you time and money; reduce maverick spending; streamline business expenditures; and lower your overall requisition costs both externally and internally.
Step Two: Issuing The Purchase Order
This is a crucial step where your business may see immediate value in automating and digitizing the procurement process. In some companies, manual processes dictate that the purchase order cannot be approved until it has been physically signed by that person with the designated authority. If this is done instead via email or by using an e-procurement software source, this can be achieved much quicker.
Once approved, the purchase requisition forms the basis of a purchase order that will outline the purchase request. This will essentially constitute a formal agreement between yourself and the supplier in question. The purchase order should include the date, prices, delivery, the agreed terms and conditions (for example, any discounts), a purchase order number, and the timeframe for payment.
Step Three: The Supplier Receives the Purchase Order
Bear in mind that a supplier may request amendments if some of the details are incorrect or not acceptable to the supplier. The supplier may then approve the amended purchase order and send it back to you, either via email or using an e-procurement platform.
Step Four: Purchaser Files the Purchase Order
Once the purchaser records the purchase order, the process is more or less complete. You wouldn’t want to skip this step as filing purchase orders will greatly assist you when it comes to your financial audits.
Step Five: Approval and Payment
Once the above four steps are complete, the product or service is delivered as agreed upon and will ultimately be inspected against the purchase order document itself. If the service has been performed as per the terms of the purchase order, payment will be made as intended.
Final Step: Ask the Important Questions
While securing a purchase order may be cause for celebration, it is still recommended that you do your due diligence to understand any future implications of that order. Have you checked the supplier’s credit history? Do they have “loyalty discounts” that you should be aware of?
As a team, you can holistically prepare for the next steps by asking all of the “what if” questions that affect your business. In this preparation, be sure to include all of your team in the discussion, including the accounting team, warehouse team, IT team, and so on.
The cost of issuing and processing a purchase order can vary, depending on your company and its needs. While it would be advisable not to spend too much time assessing your exact costs, it is useful to know that the typical costs of a purchase order can be around $35.88 per transaction. This cost can be significantly reduced, by as much as 90% by implementing a Purchase Requisition and Purchase Order Software.
Take Control of Your Purchase Orders With ProcurePort:
ProcurePort’s cloud-hosted e-Procurement purchase requisition software can help you supervise your expenditures, cut down on maverick spending, reduce time spent on purchase orders, and give you greater control over your business.To request a demo of ProcurePort’s cloud-hosted e-Procurement software, contact us today.