An organization needs to procure goods and services to operate and grow. The procurement process involves a sequence of procedures, from identifying the required resources to maintaining accurate purchasing records. Purchase requests and orders are two key steps in the procurement process within a company.
Purchase requests and orders leave a paper trail required for order tracking, accounting, and audit purposes. These records can quickly become a mountain of paperwork. However, there is an alternative for your procurement process that replaces paper-based processes: procure-to-pay software.
Learn more about purchase requests and purchase orders, and the best practices for managing and recording them.
Purchase requests and orders complement each other. Purchase requests initiate the buying process and once reviewed, grant internal approval for a purchase, which will be fulfilled through a purchase order. Both are documents that facilitate the procurement of goods and services.
The primary difference between these two documents lies in their intended use: a purchase request seeks internal authorization from management for a purchase, while a purchase order formally outlines the transaction terms between the buyer and the vendor.
A purchase request, or purchase requisition, is an internal document issued by employees seeking approval to acquire goods or services. It is submitted to management for review to ensure that the purchase aligns with the organization's procurement policies and budget.
Once management approves a purchase request, the purchasing department can proceed with creating a purchase order, which serves as a legally binding contract with vendors. The purchase request plays an important role in maintaining financial accountability and establishing an efficient audit trail within the organization.
A purchase order is a formal document issued from a buyer to a supplier, initiating a purchase and serving as a binding contract. It is created by a purchasing or finance team member, or auto generated by software, once a purchase request is approved. This process is essential for tracking commitments and managing spend, as it allows companies to monitor what has been ordered, what is pending, and what has already been paid.
The purchase order is the next step after a purchase request is approved. At that time, the purchase request is assigned a purchase order number, either manually or via automation in a software solution. This number facilitates organized recordkeeping and streamlines audit preparation.
Both purchase requests and purchase orders streamline the procurement process. They create a structured, transparent, and accountable purchasing process. Both support compliance, reduce errors and create an audit-friendly trail essential for financial control and organizational efficiency. Here are some of the specific benefits of these documents.
A purchase requisition process ensures transparency and ensures that employees gain approval for purchases before proceeding. This authorization guarantees that purchases align with the organization’s policies and goals, while managing expenditure and ensuring that no unauthorized spending is incurred.
Automating the process eliminates the need for manual data entry, allowing requests to be submitted, routed for approval, and processed much faster. This reduces manual errors and delays, speeding up the procurement cycle. The visibility into each step helps reduce costs and saves time across departments.
With automation, integrated budget visibility at decision points ensures that purchase requests align with budgetary constraints, supporting cost-conscious decision-making.
Notifications and real-time updates ensure all stakeholders are informed, reducing delays and bottlenecks.
Purchase requisitions enable companies to adhere to internal procurement policies and the traceability simplifies audit compliance.
Documenting the transaction through a requisition and approval process helps maintain control over the organization’s finances for all purchases, large or small. Audit trails track every step of the requisition process, improving transparency, risk management, and accountability.
Implementing a purchase order process can simplify your purchasing workflow. Providing standardized templates and clear vendor communication removes any ambiguity about order details and ensures a more organized purchasing process.
With defined requirements, quantities, and delivery expectations documented in a purchase order, there’s less back-and-forth and greater clarity between buyers and suppliers. This structure helps build stronger relationships with suppliers by reducing miscommunication and ensuring expectations are aligned from the start.
Purchase orders are legally binding documents detailing the transaction’s terms and conditions. They serve as confirmation of purchases and help both buyer and supplier settle any issues effectively.
Assigning a unique purchase order number to each order helps track and manage purchases efficiently, reducing the risk of duplicate or accidental orders. This benefit becomes more important as your business grows.
Purchase orders simplify financial audits by serving as proof of authorized purchasing decisions. This reduces the need to search for receipts and helps keep accounting practices straightforward and organized.
A purchase order locks in the agreed-upon price at the time of order, protecting businesses from potential price hikes between the order date and delivery. Vendors are contractually obligated to honor the price on the purchase order, ensuring budget consistency.
Electronic three-way matching ensures purchase orders, invoices, and goods receipts align, preventing overpayments or incorrect charges. This adds value by ensuring that payments are only made for goods or services that were ordered and received, improving financial accuracy and accountability. With centralized, digital documents the process is faster and more efficient, saving significant time.
Automation supports growing business needs by handling higher volumes of purchase orders without extra manual effort.
Every organization has its own procurement process flow, based on the company structures and requirements. The following steps outline a general requesting and purchase order process.
1. Identify needs: Departments and employees specify required items or services, including quantity and specifications. Inventory checks are advisable to prevent wasteful, unnecessary spending.
2. Review against budget: Confirm the purchase aligns with budget limits.
3. Select vendor: Pick a pre-approved vendor, submit a vendor for approval, or review qualifications to ensure a match.
4. Provide supporting documents: Verify purchases with supporting documents or quotes.
5. Initiate the request: Complete a purchase request form with specific details such as the vendor's name, item descriptions, tax, quantities, and cost.
6. Submit for approval: Review for accuracy and submit to the relevant approver.
7. Track progress: Check the requisition’s status and follow up as needed.
1. Create the purchase order: Businesses can generate a purchase order from an approved request. Include any necessary documents to clarify requirements.
2. Confirm supplier terms: Review terms like payment, delivery times, warranties, and return policies.
3. Send to supplier: Submit the purchase order via email or an automated submission via procurement software.
4. Monitor order: Track order status to ensure timely delivery.
5. Confirm receipt: Verify goods or services are received as specified; match the purchase order to the receipt and invoice.
6. Archive: Store the purchase order for accurate record-keeping. This is further enhanced by automation as it centralizes digital records and enables on-demand access.
Here are the best practices for streamlining purchase requests and purchase orders for an optimized procurement process.
Establish a uniform procurement process and policies to enhance efficiency, reduce errors. Standardize how your organization submits, reviews, and approves purchase requests and orders. Clearly define how to initiate purchases, outline the approval workflow, and specify essential details for requests, orders, and submission protocols.
Convert the company’s requirements for purchase requests and orders into digital forms. Capture essential details and other necessary information, making submissions straightforward and efficient.
Implement procure-to-pay software to automate the entire requisition-to-PO, approval, budget review, receiving, and invoice process. Integrating existing finance / ERP systems enhances accounting functions, streamlining accuracy and operations overall.
Develop a transparent approval structure for reviewing and authorizing purchase orders, including role definitions and escalation procedures. Ensure all stakeholders, including department heads and accounting personnel, understand their roles and any escalation thresholds.
Create clear guidelines for approving purchase requisitions: documentation requirements, timeframes for approval, review frequency, and more. This ensures appropriate delegation of authority and oversight before purchases are approved.
Keep comprehensive digital records of all purchase requests and orders to simplify auditing and effectively track spending. You can minimize errors often associated with manual processes by adopting procure-to-pay software.
Ensure accuracy and compliance by comparing three key documents: the purchase order, a goods received note (or delivery receipt), and the supplier’s invoice. Verify that quantities and prices align across all documents to prevent overpayments and discrepancies.
Regularly evaluate supplier reliability using key performance indicators such as delivery timelines and product quality, allowing for informed decisions during contract negotiations.
Continually assess and refine your procurement procedures to ensure efficiency and compliance, adapting workflows and technology as needed.
Provide comprehensive training on the procurement process and policies, ensuring team members understand how to submit and approve requests accurately and efficiently.
Your paper trail can easily become a mountain of paperwork and endless hours of administration. Adopting procure-to-pay software is the best practice for ensuring efficient access and management of your purchase requests and orders. Whether you're in the office, on the road, or on leave, you can easily access Fraxion from the web app, mobile app, or via the Microsoft Teams integration for an efficient, on demand purchasing and approval process.
Fraxion's procure-to-pay software simplifies the entire purchase requisition-to-PO workflow and the accounts payable processes that follow. You have complete visibility and control at each stage in the purchasing process. It's an all-in-one solution for purchasing, expense, and accounts payable (AP) automation.
With Fraxion's procure-to-pay software, your business spend is always tracked, approved, policy-compliant, and within budget. With automated purchasing workflows and proactive spending controls, you can avoid unauthorized spending and reduce operational costs by 15 - 20%.
Discover how our procure-to-pay software can streamline your purchasing process from end-to-end. We’d like to understand your unique needs, contact us to arrange a customized demo.
Unsure about the differences between purchase orders and purchase requisitions? In this blog post, we'll define these business-critical functions.
Use purchase order software to automate and streamline the PO process and realize efficiency and savings across your procure-to-pay function.
Discover why a purchase approval system is essential to navigating a more decentralized, disrupted procurement landscape.