When it comes to running a business, there are a lot of moving parts. One important piece of the puzzle is the purchase orders. Perfecting your purchase order process can be difficult and time-consuming, especially if you don’t understand it.
So, what exactly is the purchase order process? And what are its key steps? Below is an overview of the process.
What Is the Purchase Order Process?
A purchase order (PO) is a document issued by a buyer to a seller, indicating the type, quantity, and desired price of the goods or services the buyer wishes to purchase. The purchase order process is initiated when a business needs to buy products or services from another company. You can use a purchase order system that automates the process by populating your orders with the suppliers’ information in your database.
Key Steps in the Purchase Order Process
Your PO process will be complete if it contains the following steps:
- Purchase requisition: A purchase requisition document is issued by the department within a company that has identified a need for a product or service.
- Approval Process: Once the purchase requisition has been submitted, it must be approved by a supervisor or manager. This step is important to ensure that all purchase requests are properly authorized before you spend any money.
- Issuance of the PO Number: The PO number is a unique identifier assigned to each purchase order to track it easily.
- PO Dispatch and Approval: The purchase order is dispatched to the vendor for review. The vendor may approve the PO or request amendments.
- Contract Negotiation: This step ensures that both parties agree on the price, payment terms, and delivery date.
- Goods Delivery: The vendor will provide the goods or services you purchased. Once you receive them, you should inspect them to ensure they meet the agreed-upon quality standards.
- Invoicing and Payment: The supplier will issue you an invoice for the purchase price of the goods or services. You’ll review it and pay the vendor according to the agreed-upon payment terms.
The purchase order process is critical to running a business, especially if you follow best practices. These include ensuring that all the involved employees understand the procedures and the approval methods they should follow during the process.