Typical purchase order process
The purchase order system can look different depending on the size and operational capacity of your business (and its vendors). But for most medium to large enterprises, there are several key steps to use purchase orders efficiently.
A member of staff informs the purchasing department that a product or item is required. This is typically done using an internal purchase requisition form, after looking at inventory levels and growth plans.
The purchasing department has the option to approve, make changes or deny the purchase requisition form. If approved, a buyer from this department completes a purchase order form.
The purchase order is sent to the vendor, who also has the option to approve, request changes, or refuse the request. Changes and denials are often due to low stock from the vendor side, or a shipping turnaround time that is unrealistic, for example.
Upon purchase order approval, it typically becomes a binding contract of sale. This means that the order must be fulfilled and payment must be made under the agreed shipping terms, by the stated delivery date.
The vendor sends the requested products or items along with an invoice that matches the information on the PO system and packing slip.
The buying party pays the invoice, usually with their company credit card.
What information does a purchase order form contain?
A purchase order typically contains information about the products themselves, the purchasing party and the vendor. The following information is found on a standard purchase order form:
Purchase order number (also known as PO number)
Item description and volume
Pricing, subtotal and total
A purchasing order form is so robust because it’s so important to the procurement system. This document is verified against the packing slip (which arrives alongside the requested items) and the final invoice (which is typically due upon receipt of the items, or within 30-60 days).
But the packing slip and invoice originate from the supplier side. Since the purchasing order form is the only document from the three-way match to originate from inside the buyer company, every detail must be double- and triple-checked to hold up against discrepancies.
If you’re new to purchase orders, using a standard purchase order template and following the best practices will help create a document that fulfills the needs of your business.
Why use a purchase order system?
Creating a PO system is not just about keeping a physical trail and creating more paperwork for your team. The right PO process actually enables companies to become more agile among the chaos of today’s messy supplier and shipping networks.
Here are the keys to a successful system:
It doesn’t have to be a manual, drawn out process. Automating your supply chain through e-procurement software makes the entire purchasing department more efficient and reduces mistakes. With electronic purchase order capabilities, companies spend less time faffing around with the paperwork and reduce their chances of making costly errors.
A procurement system helps the business stay organized and keeps individuals accountable, even with the moving parts. The purchase order process helps prevent your business from duplicate orders or missing stock, since everything can be checked and matched against the invoice and packing slips.
It is important to note that most other documents in the procurement process are not legally binding, and do not offer protection for your items. Purchase order forms do this, alongside preventing any disputes with regard to the pricing and volume associated with your orders. It means you’ll build great relationships with vendors and be able to negotiate the best conditions possible.
But purchase order forms also aid businesses in holding up against auditors, ensuring that everything is harmonious for tax purposes.
Purchase order vs purchase requisition
While the may sound similar on the surface, there are some key differences between purchase order forms and purchase requisition forms.
The major difference is that while a purchase requisition document indicates the intention to purchase, it is not made available externally. A purchase requisition is the internal form sent by a department to the purchasing team. From here, it is likely to be analysed against the budget and revised before potential acceptance. But this request may be denied altogether.
A buyer is then assigned to put together the purchase order and deal with your chosen vendor. Think of the purchase requisition like a purchase order request or planned purchase order, rather than a concrete acceptance that is bound by the law.