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Automate the purchase order process – A step-by-step guide for small businesses

25 Mar, 2022 | Purchase

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A slow purchase order process can negatively impact your business. Manual purchase order processing and obsolete systems that hamper the purchase order process do more harm than good. Automate the purchase order process today.

Depending on a manual purchase order process with spreadsheets and emails is like using a bank account without ATM access.

A great way to overcome this challenge is to automate your entire procurement process.

What is a purchase order?

Before learning about the purchase order (PO) process, let us understand what a purchase order is. A purchase order is a document confirming the purchase of goods and services between a buyer and seller. Most often, purchase orders are used between two businesses for wholesale purchases, not by consumers.

POs are generated by the buyer to authorize a financial transaction in writing. Being an official document, it legally binds both parties.

A purchase goes through various stages when the vendor creates and accepts the PO. These stages form the purchase order process.

Information to include in a purchase order

A purchase order is vital as it provides a clear set of guidelines and instructions to the vendor. It gives the buyer legal proof of the exact details that are agreed upon. It helps avoid miscommunication.

Purchase order includes all information about the transaction like:

  1. Quantity and specifications about the items required
  2. Contact information
  3. The price at which goods or services are to be purchased at
  4. Order date
  5. Delivery details and timelines
  6. Payment terms and conditions
  7. Purchase order number for tracking

Read about: How can Your SME Benefit from Cloud-Based Software?

Why do companies use purchase orders?

The purchase order process is a bit lengthy, but it benefits both the buyer and seller in the long run. Here are a few of the reasons why businesses use purchase orders:

  • For vendors, POs provide a clear understanding of requirements so that your order can be fulfilled without error.
  • For buyers, they offer official confirmation of all the goods and services to cross-verify alongside the actual delivery to know if it’s been fulfilled as expected.
  • Buyers can use the document in case they need to take legal recourse. The official document may be used as evidence in court against verbal or unofficial agreements.
  • Businesses benefit by having a clear record of all their purchases so that inventory management and budgeting become easier and faster.

Steps for creating a purchase order

Requisition

Before making any purchase, an internal requisition is created and approved first before the purchase order is created. Once the go-ahead is received from the relevant teams, the process of generating a purchase order begins.

Creation

After the requisition is approved, the buyer begins to communicate with the vendor and agrees upon the specifications of the required goods and services, terms of delivery and price. A purchase order is then created that references all the details agreed upon.

Confirmation

As the purchase order process goes forward, the vendor reviews the order to make sure all the details are as discussed. If everything is correct, the vendor accepts the order. They may reject the order if there is any discrepancy or flag any concerns.

Recording

One of the reasons for following the purchase order process is to streamline purchases. It is always a good practice for buyers to file or record the purchase for future references.

Dispatch and delivery

The vendor then dispatches the goods or service and the buyer verifies if the quantity and specifications are as originally agreed upon. Buyer verification helps to identify any shortcomings so that the vendor can be notified immediately.

Closure

Closure is the final step in the purchase order process. Once the buyer is satisfied, the purchase order is sent for closure. Then, the vendor raises an invoice and the buyer’s finance team approves it.

After processing the payment, the order is closed and the purchase order process ends.

Learn about: How to Earn More Profit Using eCommerce Growth Hacking Strategies

Purchase order process flow

The entire purchase order process can be broken into many smaller steps. The PO flow tracks the whole lifecycle of the process from requisition to delivery. The process is expedited  if the purchase order process flow is discussed and consolidated before sending the POs.

Here are the steps involved in a purchase order process flow:

  1. Purchase order creation is the first step after requisition
  2. Invite quotations from various vendors
  3. Select the most appropriate vendor
  4. Initiate communication with vendor and send the completed purchase order
  5. Dispatch and receipt of items
  6. Quality check
  7. Receive invoice and process payment
  8. Record or file the order for future reference
  9. Close the purchase order

How DEAR Systems facilitates the purchase order process

Cloud-based procurement software like DEAR Systems transforms mountains of paperwork into easily traceable digital forms, storing them securely in the cloud. Say goodbye to the endless paper trail, manual data entry and lost POs.

DEAR Systems software automatically initiates and tracks the PO process and allows you to refer to the purchase order quickly when required, saving time and resources.

Try a 14 day Free Trial of DEAR Systems now.

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