Procurement processes can seem complicated, but each stage of the process can be broken down into tangible, easy-to-understand steps. Understanding the difference between purchase requisitions and purchase orders will help businesses and their employees to have a greater understanding of the entire procurement process. Helping to ensure more simplified and streamlined procedures throughout the entire supply chain.
Purchase requisitions and purchase orders each play a key role in helping organisations to plan budgets, manage costs and maintain transparency throughout their procurement activities. These documents will give an organisation better control over employee spending and will provide a greater opportunity of receiving discounts on goods or services because there is greater visibility into purchasing.
Purchase requisitions are an internal document used to seek approval to purchase goods and services. An employee will raise a purchase requisition detailing what needs to be purchased for the company and why. It will outline information such as the individual or department making the request, the product description, price and quantity as well as supplier details.
A purchase requisition is the first step in the purchasing process. At this stage no goods are being bought, it is simply a request for permission to make a purchase. Additionally, the accounting department can use this document to plan for future spending.
A purchase requisition is first completed by an employee who sees a need for a certain product or a service. They fill in all the details, including the specifics of the product or service, the price and a suggested vendor. The document is then sent to the relevant manager or purchasing department for approval.
Not all companies use purchase requisitions in their procurement processes but in other instances, some companies may require a purchase requisition for any purchases over a set dollar amount.
Purchase orders, unlike a purchase requisition, are external documents that once finalised and approved by the buyer and seller becomes a legally binding document that includes instructions on how the order should be fulfilled and processed for payment.
Purchase orders are raised for the actual buying of goods and services and are generated once the relevant manager or department has approved the purchase requisition. The main information typically included in the purchase order includes the name of the organisation making the purchase, a description of the service or product being purchased, the price of the items to be purchased, a mailing address for the company making the order, payment terms, purchase order number and the invoice address.
The procurement department will raise a purchase order once a purchase requisition has been approved. For organisations that do not use purchase requisitions, employees may simply raise a purchase order for approval.
A typical purchase order includes everything the vendor needs to know to fulfil the order and everything your company needs to document the purchase including:
- Name of your organisation
- Name of the individual or department making the order
- Date the purchase order was created
- The quantity and price of goods being purchased
- Payment terms
- Signatures of all involved parties
The main difference
The key difference between these two documents is that a purchase requisition is for the purpose of seeking permission to acquire inventory stock while a purchase order is a binding agreement for the purchase of that inventory stock. Importantly these documents help businesses by preventing the occurrence of duplicate or missing orders and they protect both purchasers and sellers.
Optimising procurement activities
The simplest way to streamline and improve your procurement processes is by using great software that will scale and grow with you; one that integrates with other apps you have. An automated system allows you to create, share and track these two documents, providing businesses with a significant cost reduction and helping them to manage costs and inventory stock.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.