Using purchase orders can help a company regain control of its spending, streamline the process of acquiring goods and services, and create a proactive spend culture that improves the bottom line.

Using purchase orders can help a company regain control of its spending, streamline the process of acquiring goods and services, and create a proactive spend culture that improves the bottom line.

An efficient purchase order (PO) system can also give employees and finance teams keep tabs on pending and future purchases before any additional money is committed or spent.

To help you leverage the many benefits that POs can bring to your organization, read on to learn what purchase orders are, how they work, and how to create a purchase order system that works perfectly for your needs.

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Should You Use Purchase Orders in Your Business?

Using purchase orders can help a company shift its spend culture from a reactive state to a proactive state. So should you use purchase orders in your business or not?

To answer this question and create an approach to purchasing that works for your company, you’ll need to take a step back and observe how your organization is currently handling purchasing.

The insights you gain from this process will help you envision how you’d ultimately like to control what team members can buy, how they request purchases, and how purchasing is processed internally.

Here’s what you should assess before you integrate a purchase order system in your company.

Purchase Requisitions: helpful or not?

Assuming your organization doesn’t currently use purchase orders, it is also likely that you’re not managing the requests your team members make when they want to purchase something. Most organizations simply allow their employees to email a manager their request and then have that person make the necessary purchases.

An informal purchasing approval process probably isn’t an issue if your company is small and employee spending isn’t exceeding your budget. But as your company grows and more employees start purchasing goods and services, the need to have tighter control on company spending will arise. This is where purchase requisitions will come in handy.

Requisitions are a purchase order request your employees make for materials or items they need to do their job. Employees send the request to their manager, or directly to the procurement team, where it is either approved or denied.

By formalizing the process of requesting to purchase something, you can eliminate excessive and unnecessary expenditures and get your company spending under control.

Keep in mind, introducing purchase requisitions is that it adds yet another step in the purchasing process. So consider if the benefits outweigh this drawback before moving forward.

Budgets

If getting your budgets under control is a priority for your company, you should know that adding purchase order requests creates two important benefits—the ability to manage a budget for employee spending and the opportunity to take advantage of volume discounts on large orders.

As employees begin to draft purchase requisitions, you’ll be able to create an average monthly spend and track what your employees are purchasing. This means you can start analyzing how they use supplies and identify opportunities for savings. An approver will be the person managing the budget. If employees go over budget, the approver may not approve all the purchase requisitions that are not immediately necessary.

Volume Discounts

Is there a chance that bulk purchasing could get you better discounts from vendors? If so, POs and purchase requisitions are likely going to be helpful.

Once your employees begin submitting purchase requisitions, the approver can also easily identify purchasing patterns. The approver can then submit bulk orders and request discounts to vendors. If the requests are created digitally, it can significantly reduce processing time because frequently requested items can be added to a catalog from the best supplier at the best price.

Purchase Orders

Is purchasing getting out of control? Do you have clear, transparent insight into who’s buying what, and which vendors you should be buying from? Can you access real-time financials that tell you how much you (and your employees) can spend on purchases at any given moment in time?

Your answers to these questions will provide clues on whether you need a purchase order system in your business.

If the answer is yes, then we’ve got good news: creating a purchase order process is likely as simple as contacting suppliers and informing them that from now on you’ll be submitting a purchase order before sending payment for goods. The supplier will likely be happy about this because it will significantly help both parties.

Once your approver has some requests that need to be fulfilled, the purchaser will complete a purchase order and send it off to the vendor. The vendor, if necessary, will communicate any concerns or issues with the purchase, otherwise, they will ship the order and invoice once payment is received.

Introducing a purchase order process is even easier for you, your employees, and your vendors when you use e-procurement software.

Summary

Many organizations avoid using purchase orders because they don’t want to deal with extra paperwork or slow their existing processes down. But unless your business is small and makes just a few purchases from a handful of vendors each month, you’re probably not leveraging the many benefits that a purchase order system can bring to your company and its bottom line.

A purchase order provides a legal document and concrete instructions for the vendor, as well as a concrete audit trail that can be used as a point of reference for when things go wrong.

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