Purchase order processes: general issues and best practices

Purchase orders are one of many essential tools in a company’s accounts payable chest. They add a level of custom and order to what can otherwise be quite a disordered system. But just like most classic spending methods, the concept is usually better than the execution. Purchase orders should add accuracy and visibility to business transactions. Instead, they tend to continue admin, confusion, and long email trails. 

In this article, we’ll promptly look at what’s making these issues. Then we’ll explain how automation and better technology separates them almost instantly. 

What is a purchase order?

A purchase order is a document produced by a customer showing what it expects to receive from a supplier. It’s a list of goods or services a company wants to purchase. The purchase order should include a clear explanation, price, quantity, payment terms, and essential delivery details.  In most cases, when the supplier receives a purchase order, it displays lawfully binding. They’ve agreed and are now tied to produce the goods. 

For companies with a simple buying or spend management process, 

POs let employees make explicit internal resourcing requests. They can set out new tools, software, or agency services they require, find the perfect vendor, and their manager can evaluate and approve the request with all the information they need. 

This gives a record of the request for everyone who needs to see it, including executive leadership and the finance team.

Purchase orders vs invoices

Purchase orders and invoices are two various steps in the same process. The first is a call from the customer, which sets out plain expectations for the goods and services requested. The following is an account of the goods and services provided, issued by the dealer to be spent. 

  • Purchase order (buyer): Request given to a supplier, describing what is expected to deliver. 
  • Invoice (seller): List of goods or services produced, with the buyer’s sum due to be paid. 

In a robust purchasing process, these two records are closely correlated. If uncertain whether an invoice is justified and accurate, the finance team (or purchasing manager) can relate to the original purchase method. They should be capable of telling immediately whether the goods and services produced match what was ordered. 

The value of purchase requests for business teams

The primary objective of POs is to build an arrangement between consumer and seller. But before they even interact with the supplier, POs help a valuable role within the customer company.  

Analyze how a regular company transaction takes place without one: 

  • A team needs to get something to work more efficiently – a software subscription, for example. 
  • A team member offers this software, and their supervisor allows the purchase. 
  • The team member performs an account and rises to utilize the software.
  • One month later, an invoice arrives. The company member can’t pay it themselves, so they assign it to the finance department. This is the first the investment team has heard about this software. 
  • To perceive all the information the finance team needs, an email chain is built. This includes the team member, their manager (who vaguely remembers approving the purchase), and the finance team. 
  • What should be a comparatively simple transaction now requires a good deal of back and forth and extra admin work for all parties. 

If this transaction had started with a purchase order, the finance team would have a whole record of who made the order and why. They would need to mark that the invoice meets the PO and handle it without issue. 

The purchase order process

The standard purchase order process includes several steps that really can’t be skipped or eliminated: 

  1. A team member has a resourcing need and produces a purchase order. 
  2. They incorporate the ideal supplier. This can include a tendering process or applications for quotes. 
  3. A budget supervisor confirms the purchase.
  4. The purchase order is forwarded to the supplier so that the order can be filled. 
  5. The company accepts the goods or services requested. 
  6. The supplier gives an invoice. The company analyzes this to ensure it meets what was ordered.
  7. The invoice is received, and the supplier gets paid.
  8. The invoice and purchase orders are delivered to company records, and the company’s auditor records the payment.

These steps are necessary, but that doesn’t mean that every force needs to be done manually or by someone.