The purchase order process: are you doing it right?

The purchase order is an essential document in the purchasing process for any business.

Despite that, purchase orders and their processing are often bogged down by delays, errors, and manual inefficiencies.

Perfecting the purchase order process is considered a time-consuming task and is therefore often not prioritized by companies. However, having an efficient purchase order process goes a long way toward maintaining AP efficiency.

In this article, we will cover

• What is a purchase order process.
• the various steps involved in executing a purchase order.
• How to optimize the purchase order process.

What is the purchase order process?

A purchase order is a document that officially confirms the purchase of goods and services between a buyer and a seller.

It is created by the buyer to authorize a transaction that may not have been confirmed in writing before.

As it is an official document, it is legally binding for both parties.

This is what a typical purchase order looks like.

We know that the creation of a purchase order means the beginning of a purchase.

The purchase order process is the series of steps that companies follow to purchase goods or services from suppliers. It is called this because the process can be viewed as a set of tasks aimed at the creation, approval, implementation and final processing of a purchase order document from start to finish.

What should be included in the Purchase Order?

A purchase order must include all relevant information about the transaction, such as:

1. Specifications and quantity of required items.
2. contact information
3. The price at which the goods or services will be purchased.
4. Order date
5. Delivery times and details
6. Payment terms and conditions
7. A purchase order number for tracking.

Stages of the purchase order process

Hepurchase order processIt involves several crucial steps to ensure compliance and efficient processing. The key stages are detailed below. We will follow an example of a company looking to buy office chairs.

1. Create a purchase order: The company needs 50 new office chairs. The office manager creates a purchase order to order them.
2. Budget request (Request for quotation) : A request for quotation is sent to several suppliers to obtain prices and delivery times for the chairs.
3. Seller Selection : After comparing quotes, a suitable supplier is chosen that offers the best price and delivery conditions.
4. Contract negotiation: The company negotiates the terms with the supplier by agreeing on a delivery date.
5. Reception of goods/services: Upon receiving the chairs, the company compares them with the purchase order to ensure that the order is correct. The goods receipt is generated if it is not yet accompanied by the order.
6. 3-way matching: Comparison of the purchase order, supplier invoice and delivery receipt to confirm that everything is aligned.
7. Authorization and payment of invoices: Once confirmed, the company authorizes the payment and the accounts payable department processes the invoice.
8. Registry mantenance : All documents related to the purchase are stored for future reference.
9. Purchase Order Closing: Once everything is completed, the purchase order is marked as closed in the system, marking the end of the process.

Challenges in the purchase order process

As we have seen previously, the purchase order process is cumbersome. These are the problems that companies usually face when implementing it:

• Manual tasks that are repetitive and inefficient.
  • cause errors and delays.
  • High costs associated with manual labor.
  • These problems increase enormously as the business grows.
• It is difficult to implement effective approval processes and exercise expense control.
• non-existent or outdated analyzes
  • leads to poor supplier performance management
  • lack of visibility of spending

Automation of the purchase order process.

By walking through the stages of the above process, we can see that the tasks involved are manual, error-prone, and time-consuming.

A company can introduce purchase order automation software to eliminate these challenges.

This is how an automated PO system like Nanonets automates the above workflow.

1. Purchase request:

An employee uses the Nanonets portal to submit a purchase request electronically.

2. Creation of purchase order:

Nanonets automatically generates a purchase order based on the request details.

3. Approval of the Purchase Order:

The purchase order is routed through an automated approval workflow within Nanonets.

You can establish predefined rules and conditional controls to maintain consistency across all procurement activities, minimizing errors and preventing unauthorized spend.

Approval notifications are sent and can be easily managed with popular communication tools like Slack and Microsoft Teams.

These approvals include direct calls to action (CTAs), simplifying the process and facilitating quick decision-making.

4. Purchase order submission:

Once approved, the system automatically sends the purchase order to the supplier via an integrated email or supplier portal (e.g. SAP Ariba, Coupa).

5. Delivery of goods or services:

The supplier processes the order and updates the delivery status on the supplier portal, which is synchronized with Nanonets.

6. Capture and collate invoice data:

Nanonets extracts data from invoices, purchase orders and delivery notes automatically, minimizing manual entry and errors.

Automated triple matching ensures accuracy by automatically matching invoices, purchase orders and packing slips before processing payments.

7. Payment processing:

Nanonets facilitates seamless payment processes, ensuring that all transactions are completed efficiently and on time. This helps maintain good relationships with suppliers and avoid penalties for late payments.

8. Integration with ERP/accounting software:

Nanonets integrates with multiple ERP and accounting systems for a unified procurement and financial data management experience.

By automating purchase order workflow with a purchase order system like Nanonets, businesses can ensure smooth data flow between multiple applications, reduce manual errors, and improve overall efficiency.

Purchase Order Process for Small Business

Larger companies often need a comprehensive purchase order (PO) system to manage their procurement process. When multiple purchasing transactions involve a large number of employees, it is crucial to have complete tracking and tracking of the entire process.

Now, let's talk about small businesses. They often operate with limited resources and may wonder whether it is necessary to implement a purchase order system.

However, there are several compelling reasons why even small businesses can significantly benefit from having an automated purchase order system.

• Improved financial control: By documenting each purchase, businesses can easily monitor their expenses and spot any unnecessary expenses.
• Simplified purchasing process: It helps keep a clear record of what was requested, when it was requested, and who it was requested from. This reduces the risk of errors such as ordering the same thing twice or receiving incorrect quantities.
• Cost savings: While setting up a purchase order system may require an initial investment, the long-term savings can be significant. By avoiding costs incurred on manual tasks, preventing over-ordering, negotiating better terms with suppliers, and reducing administrative expenses, small businesses can achieve substantial cost efficiencies.
• Scalability and growth: As a small business grows, its purchasing needs become more complex. Fortunately, a purchase order system can scale with the business, providing the infrastructure needed to handle higher order volumes and more complex supply chains.

In conclusion, although implementing a PO system may seem daunting at first for small businesses, the benefits it offers in terms of financial control, efficiency and scalability make it a worthwhile investment. By adopting a purchase order system, small businesses can streamline their operations, reduce costs, and establish a solid foundation for future growth.