Last editedMay 20233 min read
The purchase order process can be surprisingly time-consuming and cumbersome, especially for smaller businesses that process high volumes. However, there are ways to streamline the process, reduce costs and increase efficiency – without losing reliability.
Today, we’ll be exploring everything related to the purchase order process; how it works, how to automate it and how to save time and money on it.
What is the purchase order process?
The purchase order process is a series of steps businesses take to request, approve, and purchase goods or services from their suppliers.
The process typically starts with a request from a department or an individual within the business to purchase goods or services. This request is then reviewed by the procurement team or manager, who determines if the request is valid and if the budget is available.
If approved, a purchase order is generated and sent to the supplier, outlining the details of the purchase, including the quantity, price, delivery date, and payment terms.
How does the purchase order process work?
Understanding the purchase order process is essential for businesses looking to streamline their procurement practices.
Step 1: Requesting the purchase
All purchasing requests should include detailed information about the goods or services required, including the quantity, price, delivery date, and any other relevant details.
Step 2: Reviewing the purchase request
As well as reviewing whether the request is valid and the funds are available, the team or manager may also evaluate the supplier options and compare prices to ensure the best value for the business. If the request is approved, the procurement team moves on to the next step.
Step 3: Generating a purchase order
If the purchase request is approved, the procurement team generates a purchase order. The purchase order outlines the details of the purchase, including the quantity, price, delivery date, and payment terms. The purchase order also includes a unique purchase order number, which is used to track the order throughout the purchase order process.
Step 4: Sending the purchase order
The purchase order is then sent to the supplier, usually by email or through an electronic procurement system. The supplier reviews the purchase order and confirms that they are able to fulfil the order as specified. If there are any discrepancies or issues, the supplier may contact the procurement team to resolve them.
Step 5: Receiving the goods or services
Once the supplier confirms that they can fulfil the order, they deliver the goods or services to the business. The business should carefully inspect the goods or services to ensure they match the purchase order and meet the required quality standards.
Step 6: Reconciling the purchase
Finally, the business verifies that the goods or services received match the purchase order and pays the supplier. This is known as reconciling the purchase. The business may use an electronic accounting system to reconcile purchases and track expenses.
How to automate the purchase order process
Automation can significantly reduce the time and effort required to process purchase orders. Here are five ways to automate and streamline the process:
Use accounting software: Accounting software, such as QuickBooks or Xero, can help automate the purchase order process by creating purchase orders, tracking expenses, and sending payment reminders.
Implement an electronic procurement system: An electronic procurement system allows businesses to create and approve purchase orders electronically, reducing the need for paper-based processes and manual data entry.
Use Electronic Data Interchange (EDI): EDI is a technology that enables businesses to exchange purchase orders and other procurement-related documents electronically with their suppliers.
Set up automated notifications: Automated notifications can be set up to alert departments or individuals when a purchase order has been approved, sent to the supplier, or received.
Use barcodes for receiving: Barcodes can be used to track and receive goods, reducing the need for manual data entry and improving accuracy.
Using accountancy software to streamline the purchase order process
By using accounting software such as Xero to automate and streamline the purchase order process, businesses can reduce the time and effort required to process purchase orders, improve accuracy, and free up resources for other tasks. Here are five ways that accounting software can be used to automate and streamline purchase order processing:
Create purchase orders automatically: Automatically create purchase orders based on predefined rules and reduce the need for manual data entry.
Track purchase order status: Track the status of purchase orders, such as whether they have been approved, sent to the supplier, or received.
Manage supplier information: Manage supplier information, such as contact details, payment terms, and pricing information. This makes it easier to generate accurate purchase orders.
Reconcile purchases automatically: Reconcile purchases automatically, compare the goods or services received against the purchase order and flag any discrepancies.
Generate reports: Generate reports on purchase orders, analyse purchasing patterns, identify cost savings opportunities and track supplier performance.
The average cost of processing a purchase order
Processing a purchase order can be expensive, with average costs ranging between around £50 and £1,000 per order, depending on the industry. These costs include the time spent reviewing and approving the request, generating the purchase order, and reconciling the purchase.
By automating and streamlining the purchase order process, businesses can significantly reduce these costs, improve efficiency and free up resources for other tasks.
We can help
GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with.
It can integrate natively with Xero to create a complete accountancy solution, collecting payments automatically from customers and generating purchase orders. Find out how GoCardless can help you with one-off or recurring payments.