Purchase Orders vs Purchase Requisitions

Purchase orders and purchase requisitions are vital documents in the procurement process of any business because the items a business needs to operate are ordered based on the exact information on those documents. Creating documentation of these processes will help businesses manage costs better and provide a paper trail for auditing purposes. However, these documents aren’t used as much as they should be, so let’s understand exactly what they are and how they can benefit businesses.

What Is a Purchase Requisition?

A purchase requisition is an internal document or form that an employee of a business fills out and submits to a pre-designated approver to purchase goods or services. This approver could be a manager, the purchasing or finance department, or any other person that has authority to approve purchases. The moment a purchase requisition is handed over marks the start of the purchasing process, but does not guarantee that the purchase will go through.

A purchase requisition process is one of the best antidotes to overspending. This mechanism ensures all purchases will be pre-approved before they are actually made, making it really tough to go over-budget. When a requisition is submitted, the pre-designated approver is notified and will analyze the order to see if it’s legitimate, if it’s required, and if it’s within budget. The order will be fulfilled or not, based on the decision made by management.

Up to this point, you might be thinking that using purchase requisition documents is an excellent practice (and we do too), but there’s a catch. Integrating a purchase requisition system in companies that have manual procurement processes in place could create more harm than good. Manually tracking these requisitions and all their paper trail, through a variety of platforms such as slack, gmail, or spreadsheets, turns out to be daunting. When done manually, It’s definitely a process that is prone to error.

That’s the reason Procure to Pay (P2P) solutions such as ControlHub, that help centralize and automate the whole procurement process, are such a reliever for companies that want to move fast and stay within budget.

Mainly used for bookkeeping and expenditure control purposes, purchase requisitions often require the following information:
  • Request Number
  • Name of the department and employee making the request
  • Description of the product and quantity required
  • Name of vendor
  • Purchase price (or expected purchase price)

Purchase requisitions might seem like a simple document, but it’s a powerful tool when properly utilized.

Purchase requisition form

When discussing purchase order vs purchase requisition, it’s important to understand the purchase requisition form. Employees use the purchase requisition form as an internal document to purchase goods and services on behalf of the firm. The purchases can be for inventory, business operations, or manufacturing inputs.

The employees submit purchase requisition orders to the purchasing department for approval. Once the purchasing office approves the purchase requisition orders, a purchase order is issued to the vendor for the requested goods or services.

The contents of a purchase requisition form include the name and department of the requester, the purchasing office, and date of the request, products or services requested, and reasons for purchase. You also provide information on the item quantity and price and the legal name of the supplier.

Purchase Requisition: Uses

Purchase requisitions are used as a security measure to provide more control over the expenditure of funds by giving a single department/person control over each purchase. Additionally, this allows a business to identify fraudulent practices as the finance department has visibility of every order and an extra step to catch it before they happen. Purchase requisitions represent extra documentation of all purchases, which is helpful when it comes to establishing a standard procurement process.

ControlHub is the best way to keep track of all purchase requisitions in one place, and leverage that information to streamline the rest of the procurement process.

What Is a Purchase Order?

A Purchase Order (PO) is an official document issued by a buyer who wants to place an order. It is important to note that a PO should be created only after a purchase requisition gets approved. (click here to see how procure-to-pay software such as ControlHub, could help you streamline the approval process).

A purchase order could be generated by a special department/person in charge of purchasing decisions, or by an employee that recognizes the need to request a purchase. 

Here's a PO example:
Try our online PO generator. It's free!

Some businesses don’t use purchase requisitions, in which case any employee can fill out purchase orders that won’t need to go through an approval process.

A purchase order is generally considered to be an external document that will be sent to the vendor, which will start a sales transaction, but it can also be sent internally if one department of a company wants to purchase items from another department.

Purchase orders become a binding contract once both the vendor and purchaser agree on the terms. It is important to keep in mind that the purchase order marks the beginning of the transaction between a buyer and a seller, and it is not an invoice.

Purchase orders contain much more information than purchase requisitions because they are actionable documents. Usually, a purchase order will have the following information:
  • Purchase order number (can be associated with a purchase requisition number if one was used)
  • Name of the department and employee making the request
  • Description of the product and quantity required
  • Name of vendor
  • Purchase price (or expected purchase price)
  • Payment terms
  • Shipping address

Purchase orders are vital documents for keeping accounts and allowing for accurate and efficient bookkeeping, which, in turn, helps companies during audits.

Purchase Order Uses

There is a large amount of risk when businesses deal externally, and though some verbal contracts are binding, it’s always better to put any deals in writing, which is essentially what a purchase order does. It is also a good tool to keep track of all the purchases that were made.

Purchase orders are also used to lock in prices from suppliers. If the vendor increases the costs between the time the order is made and the delivery occurs, they will have to fulfill the order at the initial amount agreed upon when the purchase order was sent out.

The Differences Between Purchase Orders and Purchase Requisitions

Here is a breakdown of the main differences of a purchase requisition and a purchase order:

Purchase Requisition
  • Function: Requesting the purchase of goods/services
  • Time in which it's sent: When there is a need for goods/services according to the employee
  • Sender: Any employee
  • Receiver: Usually, the head of a relevant department or a similar authority
  • Information contained:
    A. Request Number 
    B. Name of the department and employee making the request
    C. Description of the product and quantity required
    D. Name of the vendor
    E. Price or expected price of the purchaser

Purchase Order
  • Function: Confirmation of an order to purchase goods/ services
  • Time in which it's sent: When the need of requested goods is recognized and an order has to be placed
  • Sender: Usually, the head of a relevant department or a similar authority
  • Receiver: Vendor
  • Information contained:
    A. Purchase order number (can be associated with a purchase requisition number if one was used)
    B. Name of the department and employee making the request
    C. Description of the product and quantity required
    D. Name of the vendor
    E. Price or expected price of the purchaser
    F. Payment terms
    G. Shipping address

How To Manage Purchase Requisitions and Purchase Orders

Integrating the processes of purchase requisitions and purchase orders into a business’ existing accounting framework can prove to be difficult, and it could even be considered tedious at the start when the results are the least apparent. But that is a thing of the past because of the introduction of procurement purchasing software like ControlHub, which handles the procurement process from end to end.

ControlHub is a procurement purchasing software that manages purchase requisitions and ERP purchase orders. With ControlHub you can create requisitions via Slack or directly on their web-app. The system controls are personalized to your needs. Among the controls you can make use of, it can be set up so that only trusted vendors get purchasing controls approvals. 

Choosing the right procure-to-pay software is challenging. You should look for a solution that provides data from the whole purchasing process, and that it does it in real-time.  

With ControlHub, purchase orders are generated automatically once the requisition is approved to ensure that there is no time wasted. The software also integrates seamlessly to cloud accounting solutions to make record-keeping easier such as QuickBooks and Netsuite.

Purchase Order Automation

Purchase order automation uses a platform to enforce and automate a purchase order approval process. It's the best way to better spending visibility.  Large or small businesses can struggle with tracking spending as the organization grows. They need to automate the process to avoid these errors.

The purchasing process is more than just purchase orders. It helps know who made and allowed each purchase to avoid duplicate orders. Without accountability, employee spending in an organization can get out of control quickly.

One of the key aspects of the purchasing procedures is that the packaging order approval process regains control of the company's spending. It eliminates the hassle of sorting through receipts and trying to determine who made purchases through credit card statements.

There are several steps of the procurement process.

  • It starts with the employee creating a purchase order and the manager reviewing and approving the purchase order.
  • The VP reviews and approves the purchase order but only if the amount is more than $10 K.
  • He then sends the PO to the external supplier to the company.
  • The employee receives and services and the purchase invoice from the supplier
  • They then authorize paying with a new supplier
  • The process ends by filing documents for record-keeping

The purchase order process can look different from many organizations and in route different people. While these are the required steps, many other steps are involved in the purchase order process.

Out of these manual steps of the purchase order process, you can automate the purchase order approval process using purchasing software. In a virtual card environment, you gain insight into the company's spending and know who is making purchases. It also allows a company to decide which employee has the most purchasing power.

You can essentially automate the purchase order approval process by leveraging purchasing software such as controlhub. This software will automatically send the purchase request to the appropriate team member for review and approval. It removes the inconsistencies out of business purchasing.

The purchasing department will no longer search for information to check on an incoming orders’ status when using the automation software. The platform offers instant visibility into where things are.

Purchase order automation benefits an organization, which is the first step towards an automated accounting department. Combining the purchasing software platform with a virtual expense card gives employees the purchasing power to eliminate any costly error and rogue spending.

Purchase Order Approval Process 

While the term "purchase order" is associated with procurement services in large companies, it's a very vital part of the day-to-day operations of small businesses. A purchase order is a contract between a customer and a vendor agreeing on the quantity and pricing of a product or service. It allows businesses to track inventory and cost while ensuring accuracy.

Purchase order approval refers to the flow of actions required from several stakeholders to validate a purchase order and bring it into effect. It is an important part of project management to ensure a smooth project workflow. Every purchase order must pass the internal approval process of the buyer and a vendor to become a legally binding contract.

The problem with the manual purchase order approval processes is that they are inefficient, with constant data entry errors and high operational costs. Manual processing also makes accountability more difficult. When using manual purchasing procedures, you may encounter several problems, such as the purchase manager forgetting to sign off a purchase order. There's also the risk of filing bronchitis requests and delays.

Using automatic approval software that increases efficiency and reduces costs can help avoid these problems. It is the way forward in risk management to create a sustainable and scalable foundation. Once the process is digital, you can automate repeatable tasks to increase efficiency and boost stability.

Here's how you can automate the purchase order approval process.

  1. Start by auditing the current purchase order process: You need to understand your current system before rectifying inconsistencies and streamlining the approval process. The audit allows you to understand how your PO process functions and identify inconsistencies or inefficiencies.
  1. You didn't identify approval forms: Look at your purchase order process to determine approval points. Determine whether the process is sufficient and where the bottlenecks occur. For example, there could be too many approval steps which you could scrap some to increase the speed and efficiency. By analyzing the pill approval workflow, you can determine that the system is inefficient.
  1. Follow by analyzing your current purchase approval process: Analyze the current bottlenecks in the process and any errors that slow it down. The whole process could be tedious, error-prone, or wasteful because of these bottlenecks. The analysis allows you to know where to improve your approvals process to resist failure. You can easily manage complex routing, and approvers can access the system anywhere.
  1. Set goals and metrics for your new purchase order approvals workflow: You will need to set goals and metrics to understand how well the new purchase order approval workflows are performing. The goals should entail what you want to improve and by how much. You can work out how you will measure your performance in these areas with measurement mechanisms to monitor your progress.
  1. Now choose an automation software solution: There are dozens of software solutions with amazing benefits. They provide automatic data validation, e-signature capabilities, automatic routing, automatic notification, access to mobile devices, and integrations with other systems.
  1. Finish by measuring and improving the process: Measure the impact by determining whether your purchase order approval workflow runs faster and whether you are saving money.

Purchasing department & Purchasing card 

An automatic purchase order approval system completely changes your purchase order approval process. You get automatic notifications and reminders, visibility into the prior approval status of invoices, and a complete package to review. Automating the approval process provide flexibility and control. It allows employers to dictate who decides and purchases.

The purchasing card allows organizations to use the existing credit card infrastructure to make electronic payments. Organizations pay the card issuer in full every month, allowing employees to spend at work without going through the formal purchasing. It offers several features and benefits, such as connection to a central platform and customer spending limits on each card.

These cards are the most secure way to pay online as they eliminate credit card fraud. They provide simple access to company funds. Once you give every employee a purchase card, you make it easy for them to facilitate transactions such as buying office supplies. They require less paperwork and more time for maintenance. This is because automating the approval process retains the purchase history and tracks the purchase order numbers, eliminating any confusion around duplicate ID documents.

Purchase order approval software changes their accounts payable workflow. It manages approvers, allowing employees to initiate transactions on behalf of the organization. The virtual cards streamline one-off expenses such as office supplies, electronic components, and hardware parts.

Getting the purchase cards can completely revolutionize your PO approval workflows. It streamlines the process and saves you both time and money. Its benefits include improving control of your purchase-to-pay processes to achieve real-time cost control. The purchasing card also eliminates mavericks spending and reduces the time spent on your indirect procurement services and procurement processes.

Inventory Management & Wrap Up

Inventory management entails supervising the flow of goods from manufacturers to warehouses and balancing supply and demand within a business. There are many advantages of inventory management to an engineering purchasing department. The process ensures a procurement department doesn’t

Order too much inventory that can lead to losses. It’s part of risk management that allows a company to order just enough to meet consumer demand. It also helps keep the warehouse organized through carefully tracked inventory and supply chain management.

Sims inventory management involves accurate record-keeping using specialized software or hardware; it helps save time. The integrated inventory management tools automate workflow tasks and allow the purchasing department to focus on other important areas. It allows you to reduce your processing times, increase process efficiency, and empowers the team to have full visibility and confidence.

Automation is the solution to reduce most of the problems in your purchase order system. It allows the engineering team to fully digitize the completion of purchase orders and design a workflow that completes all the steps. You keep track of your products in real-time, saving you the time taken to check for record accuracy.

Automating the purchase order approval ensures the purchase order is always finalized on time. It eliminates the need for the procurement department to manually route purchase orders for review and prior approval using physical paper. With an automated purchase process in place, the purchasing department can easily manage incoming invoices and payments to avoid duplicate orders and focus on higher-value activities.

Leveraging purchase order automation reduces the process stream and can eliminate the steps. It reduces the manual steps, allowing team members to focus more on high-value activities. For example, when you automate the purchase order process, you don't have to create a purchase request or receive goods and services. You also won't have to manage 3-way match mismatches.

The steps involved will start with a purchase invoice from the supplier received and automatically routed, stored in the document management system, and automatically generated in our AP once approved. For example, once approved, the incoming orders are automatically created within the ERP, eliminating the need for data entry. Automating the purchase order system can save you money in the long run. It's an important part of optimizing your purchase process.

Wrap Up

Purchase requisitions and purchase orders are more than simple documents and extra steps in the grand scheme of the procurement process; they offer real value that becomes visible quickly. While an argument could be made that adding extra steps to a manual procurement process is tedious work that is prone to error, using inexpensive procurement purchasing software like ControlHub makes it a no-brainer. If a fast growing business is looking for more control over expenditure, a more robust way of preventing fraud, and improving record-keeping, adopting a e-procurement purchasing system is the way to go.