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Purchase requests and purchase orders (POs) are often used interchangeably, but they are two interrelated, subsequent steps in the procurement process that are key for effective spend management.
A purchase request is an internal process used to gain approval for a purchase.
A purchase order is a formal document issued to a supplier to confirm the purchase of goods or services.
Understanding and implementing both steps properly ensures streamlined procurement and financial control.
Purchase requests offer several advantages that help businesses maintain control over their spending:
There are several reasons why companies implement purchase orders in their procurement processes:
The PO process is part of a wider Accounts Payable or Procure-to-Pay (P2P) process, which you can read more about here. Here’s a concise overview of just the PO process.
Raise a Purchase Request: The process begins with an employee identifying a need to make a purchase. The request would detail the supplier, item description, quantity, price per unit, and any additional fields like office location or department.
Approve Purchase Request: The next step involves the approval of the purchase request. Approvers, such as line managers or finance team members, evaluate the necessity of the spend and the supplier selected. They can approve, reject, or request more information.
Generate PO: Once approved, a purchase order is generated. Automated systems can pull data directly from the approved request to create the PO, ensuring accuracy and efficiency. This formal document is then sent to the supplier.
PO Approval from Supplier: The supplier reviews the PO terms and confirms their ability to meet the order. This includes verifying item availability, delivery dates, and price, ensuring alignment before proceeding.
While it is a beneficial process, many organisations have a hard time implementing these systems, and POs often have a bad reputation:
The software provides the user interface for both business-side and finance users. It allows finance teams to configure the processes, such as approval workflows, and have visibility of requested spend, while business-side users can request or approve spend. It is important that this software has different types of accounts. As well as providing the infrastructure for raising and approving spend, software can also provide some automation features to streamline the process.
The scope for automation is more limited due to the inherently human nature of raising and approving spend. However, there is more scope for automation in invoice management.
There are lots of solutions available, but it is important to pick one that is going to help mitigate common problems:
For a more detailed look at what to consider when choosing a PO system, refer to our buyer’s guide.
While POs add an extra step in the accounts payable process, they are essential for preventing unapproved and maverick spending, gaining visibility into expenditures before invoices arrive, and avoiding financial surprises. Read more about the benefits of POs here.
Implementing a robust purchase request and PO system is essential for maintaining financial control and accountability. These systems ensure all expenditures are necessary and justified, preventing unauthorised spending and fostering a culture of accountability. A well-designed PO system helps predict outgoing money, establishes clear expectations with suppliers, and serves as a legal safeguard. Automation features like automatic assignment to approval workflows, approver insights in emails, and automatic PO generation streamline the process, reducing manual errors and speeding up approvals.
While challenges exist, such as gaining employee buy-in and avoiding approval bottlenecks, the benefits far outweigh the hurdles. The right software can mitigate these issues with user-friendly interfaces, customisable workflows, and comprehensive reporting tools. Ultimately, purchase requests and POs provide control over spending, improve financial visibility, and prevent unexpected expenses. Investing in a robust PO system helps businesses achieve financial discipline, enhance procurement efficiency, and drive overall success, bringing long-term benefits to financial health and operational effectiveness.