What Is Purchase Requisition | 2 mins read

What is Purchase Requisition vs. a Purchase Order?

what is purchase requisition vs a purchase order
Chloe Henderson

By Chloe Henderson

As a business expands and increases its order volumes, it becomes cumbersome to manage internal and external correspondence, expenses, and purchase details. Without a proper approval system, departments can mishandle funds and disrupt the procurement process.

By mandating purchase requisitions and orders, the purchasing and financial departments can maintain control over outgoing funds and budgets. Departments need to learn how each form is used and how it enhances the procurement process.

What is a Purchase Requisition?

what is a purchase requisition 1600115024 3948

A purchase requestion, or purchase request form, is a document that is filled out to request a purchase order. As the first step in the procurement process, the purchase requisition is necessary to source supplies, services, and initiate purchases.

A company's purchasing department drafts a request form and submits it to the finance department for approval. Upon approval, the procurement process can begin, and management can contact the vendor. However, the request may be denied for several reasons, such as price, order size, or late submission.

Typically, when the purchasing department receives the form, they only focus on the expense. While every business is different, the average cost benchmark is exceeded after $5,000.

Each form outlines order details, including-

  • Name of the department making the request
  • Company address
  • Order quantity
  • Product description
  • Supplier name and location
  • Order quote
  • Estimated delivery date

The more details are provided on the request, the better the accounting team can orchestrate a smooth procurement. Order description allows them to plan the logistical needs to unload and stock items.

Online employee scheduling software that makes shift planning effortless.
Try it free for 14 days.

what is a purchase requisition 1600115024 1206

Why Businesses Need Purchase Requisitions

Businesses need a purchase requisition because it creates a paper trail that is easily compiled for audits, taxes, and financial reports. Documenting request forms also helps-

  • Streamline the Procurement Process - By establishing a hierarchy when it comes to drafting and approving purchase requests, organizations can efficiently orchestrate procurements. The process is simplified and easier to manage when the steps, head departments, and required forms are outlined.
  • Detect Fraud Within the Business - Having to complete mandatory steps before completing a purchase enables companies to detect and prevent fraudulent activity.
  • Provide Better Financial Control - Establishing a standard approval process for all departments give companies full financial control overspending. Without a set procedure, an organization could quickly lose track of funds and control over expenses.

What is a Purchase Order?

what is a purchase order 1600115024 4962

The next step in the procurement system is retrieving the purchase order (PO). The PO is a document that is drafted and sent to the external provider. Once the purchase request is approved, the form is designated a purchase order number, which typically matches the requisition, and sent to the supplier.

The PO initiates the transaction and acts as a contract between the business and the supplier. Companies should also file all PO's within their accounting system for future reference and audits.

Much like the purchase request, the PO needs to contain specific information-

  • Name of Supplier
  • Order Details
  • Payment Terms
  • Invoice
  • Shipping Address
  • Purchase Order Number

PO can also be submitted for internal transactions, for when one department wants to source a good or service from another. For internal purchases, an interdepartmental PO must be filed to report and monitor the exchange, as each department may have a separate budget.

what is a purchase order 1600115024 5416

Why Businesses Need Purchase Orders

As a rule of thumb, businesses should never enter a verbal agreement as it can introduce many risks, such as misunderstandings or manipulations. With a PO, all agreement specifications are stated to promote transparency and avoid purchase discrepancies, such as duplicate orders and payment issues. This is especially crucial as a business expands and needs a reliable tracking system to monitor purchases.

Aside from streamlining financial audits, PO also enables companies to catch unexpected price jumps. A PO clearly states the rate agreed upon by both parties if the supplier tries to raise the order price. Since the PO is a binding contract, the vendor must abide by the agreement or face legal repercussions.

Documented PO's help keep an organization's financials in order, making it easy to refer back to previous orders and check expenses. They also help logistics managers facilitate seamless order retrieval by providing information on shipment and delivery dates.

Online employee scheduling software that makes shift planning effortless.
Try it free for 14 days.

Benefits of Using Inventory Ordering Software

benefits of using inventory ordering software 1600115025 2147

The physical documentation of purchase requests and order forms can become tedious for companies that handle large order volumes. However, businesses can automate the procurement process with inventory ordering software.

Modern ordering solutions can oversee the procurement process and virtually connect businesses with suppliers to streamline purchase orders. This reduces the wait times between approval periods and prevents forms from getting lost. Digital documents minimize paper waste and create an efficient filing system that makes it easy to pull documents based on certain vendors, dates, and goods.

Advanced ordering software can even integrate with existing systems, such as inventory tracking solutions, to promote data-sharing. System integration enhances information control and ensures that each department is working with accurate, real-time data.

 cta content inline and exit intent