Purchase requisition vs. purchase order - Why it matters
- 25 Oct 2021
- AP Automation
Purchase requisitions and purchase orders are cornerstones of the AP department. Therefore, understanding the difference between the two is crucial to maintaining internal organization and reducing costs when dealing with external suppliers.
The requisition and ordering process impacts the AP and procurement teams, C-suite, and the organization. Thus, recognizing the differences and creating a streamlined purchase order system directly impact an organization’s overall profitability.
What is a purchase requisition?
The purchasing process starts with a purchase requisition, an internal request to buy goods or services. The AP department prepares the purchase requisition and forwards it to the purchasing department to approve or reject. The information included on the form consists of the department and name requesting supplies, number of supplies with description, vendor name, and expected price.
The intelligent use of automation tracks purchases from requisition to order, payment, and delivery. A customized purchase order system organizes in-house processes and eliminates tedious, manual processes that leave room for error. Manual approvals may take days or weeks, leading to potential errors and late payment fees, negatively impacting vendor relationships.
With automation, requisitions can be approved in minutes in real-time. Plus, automated processes support remote workers. For example, during the pandemic, companies quickly discovered the ROI for cloud automation that enabled employees to work at home.
What is a purchase order?
Once a purchase requisition is approved, an internal department creates a purchase order to confirm a charge. The purchase order includes the same information as the requisition and creates documentation for the transaction. Additional information may consist of the delivery date for the order, billing and shipping address, subtotal with taxes, discounts, and adjustments, and payment terms.
Keep in mind that all purchase orders are not created equal. Types of purchase orders include:
- Standard PO containing basic information as stated above
- Contract PO detailing the terms of an upcoming purchase order before the order is complete to provide additional legal protection for large or costly purchases
- Planned PO requests items in advance to help vendors meet future needs
- Blanket PO commits an organization to purchase a number of items up to a specified value to guarantee to spend a certain amount with a vendor
Implementing cloud automation adds efficiency to the overall process with visibility to all approved team members in real-time. Plus, approvals and contract reviews are completed in a fraction of its time to do these tasks manually. As a result, organizations realize more significant savings, faster production time, and fewer incidences of error and fraud.
Why does purchase requisition matter?
Since a purchase order actually initiates buying goods or services, why is a purchase requisition necessary? First, a requisition lets department managers and the purchasing department know about purchasing decisions to align accounting department reporting procedures. This matters because if department managers order directly, there is a far greater risk of fraud and theft. As a result, a procurement team places orders from suppliers on behalf of other departments in the organization.
With this series of internal checks and balances, the process starts with an audit trail for accountability, accuracy, and transparency. Next, the purchase requisition kicks off the buying process, protecting the organization from potential acts of fraud. Plus, this process centralizes the procurement process to support improved spend management so the organization scores the best possible deals.
Bringing it all together
Robust POS systems streamline the requisition process, with customization to support an organization’s internal and external procedures and cloud collaboration in real-time to boost business outcomes. Finance and procurement work seamlessly together, regardless of time or location. Cloud collaboration supports remote work, reduces fraud, eliminates human error, and ensures companies remain productive and profitable - which is crucial in a competitive, post-pandemic business environment.
Implementing automation leads to faster issuances of purchase orders because requisitions can be approved in minutes. As a result, critical supplies arrive faster, enabling companies to compete as the business world opens after a new normal. However, failure to adopt cloud technologies inevitably means being left behind as supporting remote workers becomes increasingly important.
A purchase requisition is essential to plan to buy necessary goods and services, get approvals, and ensure transparency in contracts and purchases. When the requisition is approved, a purchase order is created to purchase goods or services. In the past, this process could take days or weeks when performed manually. Cloud automation streamlines and shortens approvals, helping organizations remain relevant and profitable in a fast-paced, post-pandemic marketplace.
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