Purchase requisition

Procurement process

The procurement process kicks is any time your business wishes to buy goods or services.

The following kinds of transactions may be initiated using a purchase requisition form?

1. Office supplies

2. Raw materials

3. Equipment and parts

4. Services, including consultants and freelancers

5. Virtually any other purchase not required for personal use

Let’s break the overall purchasing system down into three stages.

Purchase requisition workflow

The purchase requisition form initiates the entire procurement process. When a department requires goods, services or materials, a designated requestor will fill out the details using this form.

The information required on a purchase requisition includes:

• Product description

• Unit cost, volume required and total charge (dollar amount)

• Purchaser info (including individual details, department, requisition number and date)

• Vendor details

The purchase request is then sent to the finance team for approval, denial or changes. Several caveats impact whether or not a purchase requisition is accepted, such as: whether the potential vendor has been previously approved, whether the product has been screened, or that the individual requesting party has the authority to make the request.

Sometimes, stocktake may also be required to prove the necessity of the purchase. In some companies, purchase requests are only be required if the cost of the good and services advances past a designated threshold.

Purchase order

At the point of approval, an external document is created to progress the workflow. Once accepted by the vendor, the purchase order form is a legally binding document and contracts both sides into the deal.

Larger companies usually have one designated purchasing officer. All payment terms need to be agreed by this person. This can help with budgetary control too, since expenses become centralized through a single department.

More agile businesses may rely on managers and department heads to approve their own purchases. Provided there are clear rules and other employees know the system, this can be equally effective.

Receipt of goods

The procurement department handles the operation from purchase order submission to receipt of goods. Upon receipt, products should be inspected and records, such as the delivery date, are made to document the process. This keeps every party accountable and develops physical evidence in case of later audit.

Accounting

The finance department works closely with the procurement team to create records at all stages of the process. Accounts payable will typically accept the materials and trigger payment to the vendor within 30, 60 or 90 days, depending on the supplier invoice and prior agreement.

Benefits of purchase requisition

While currently overlooked by the majority of SMEs, purchase requisition is actually an essential part of good business practice. In fact, its benefits go beyond simple organizational perks.

Better spend management

One key component of the order form is vendor details. This is important, since most SMEs work with approved vendors only, where they have negotiated beneficial pricing in exchange for a high-volume of orders.

Purchase requisition therefore helps to prevent maverick spend, since the vendor request can be double-checked for previous approval. It means that your business keeps the good relationship it has built with preferred suppliers, and receives the best cost arrangement possible (as per previous negotiations).

Furthermore, the purchase requisition form includes a reason for the ordering of goods or services. This can be tracked against budgetary considerations or predictions, and will assist the finance department in making decisions.

Tighter internal controls

The purchase requisition process ensures that potential expenses are fully considered before becoming legally binding. Requests change hands multiple times before approval. This adds steps to the procurement process and builds confidence around decisions.

Just because steps are added, it doesn’t mean that the process has to become slow and stagnant. Companies that work with automation tools keep the system smooth and fast. Essentially, the finance team gains ultimate control and management over each purchase order through their central system, instead of dispersing control between the individual departments.

Streamlined inventory management

The benefits to purchase requisition are somewhat boundless. For example, the process enables companies to protect their businesses against missed deliveries and streamline inventory management.

Purchase requisition is one of the first of a few recommended steps in correcting cash flow issues. Since stocktake is typically also an integral part of this process, it lets managers and department leads order new products or parts only when necessary. This facilitates more working cash flow focused on business growth, rather than being tied up in assets.

Stronger audit trails

Ensuring that all staff use the purchase requisition process properly centralizes documentation. This is key for organizational reasons and helps the finance team to track actual expenses against budgeted forecasts. However, this paperwork also keeps team members accountable.

Where the paperwork contains details of the stock, vendor and purchase requestor, each component holds a level of responsibility. If mistakes occur or things go wrong, investigators will have all the information required to determine exactly what happened. Purchase requisition protects the business against auditors, since it ensures that records have been made at every stage in the procurement process.

Most SMEs wait to implement a purchase requisition process based on business need, in order to bring more automation to the operations. But this is too late. As companies scale, having these automated systems already in place will enable smooth growth without friction. Moreover, the prior existence of a robust order process and procurement system is likely to prevent bottlenecks during phases of development.

Get started by carving out some templates in order to speed up the process. Alternatively, to skip the learning curve and move straight to automation, try Spendesk.