Purchase order process: definition, steps, and best practices

purchase order process

Last modified on March 26th, 2024

The manual way of processing a purchase order can cost a business more than $500 for every order, according to APQC. It is worth exploring automation for the purchase order process. Read on to find out a definition, the steps, and best practices for an optimized purchase order process.

Trustpair’s software integrates with different procurement and purchase management platforms that look after purchase orders. It adds a layer of security to these solutions thanks to anti-fraud features. Request a demo to learn more! 

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What is a purchase order process?

A purchase order process involves all the steps that are taken from the order creation to the order closure. It is a part of the overall procurement process.

The orders process can differ depending on the size of the organization and the industry.

 

What are the steps of the purchase order process?

These are the seven purchase order process steps:

  • Create the purchase order
  • Get approval
  • Send to vendors
  • Negotiate the contract
  • Receive the goods
  • Perform three-way matching
  • Close out the order

Create the purchase order

Create a purchase request. Your business will need to identify what you want to purchase, how much of it, the time frame involved, and your budget in order to requisition supplies.

Get approval

Next, your company will send this request off for approval to the relevant people in your organization.

Depending on the size of the company, there could be differing layers of approval. For example, in large organizations, multiple approvals may be needed, including one from the head of finance.

An approval could be verbal, over email, or via paperwork. If manual processing takes place, it can be really time consuming, especially with hundreds of suppliers.

Considerations will include as to whether it aligns with the budget pre-approval.

Send to vendors

Following approval, the chosen suppliers will receive the purchase order. These vendors can then provide bids on the purchase order. Alternatively, if a buyer is more set on one supplier to cover an order of items or services then it may just go to them.

Learn more about vendor onboarding here.

Negotiate the contract

The buyer and the chosen supplier or suppliers must agree to a legally binding contract on a document. This would usually include details like the terms and conditions.

Receive the goods

The goods or services will arrive from the supplier. It is your company’s role to then check they match the purchase order process documentation and meet your expectations in terms of the required quality.

The supplier or suppliers will also provide an invoice or invoices for the goods.

Perform three-way matching

This step ensures that all parties have what they require. If the goods are at the expected standard, the buyer then needs to check the goods receipt, the purchase order, and the invoice.

Once the three-way match is complete, the purchase order invoice can be passed onto the financial team for payment delivery. Following the accounts payable being paid, the order can be closed and all of the steps are complete.

Learn more about supplier risks and vendor onboarding in our latest white paper

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Best practices to optimize the purchase order process

Here are some best practices for how to improve the purchase order process. For best practices to optimize the entire procure-to-pay process, read this article.

Analyze your purchase order process

By taking a look at your purchasing processes, you can identify ways to improve. Thoroughly investigate each step and whether it is being done as effectively and smoothly as possible.

For example, in the approval stage, could you potentially have four people giving the go-ahead for the purchase instead of six. Small changes could help avoid potential bottlenecks in the future.

We would also recommend that you deploy the four-eyes method in the approval phase. Each verification step of your approval process is given to different employees to improve overall security.

Put in place clear guidelines

Having accessible, clear, and transparent guidelines and a purchase order process flowchart will ensure that everyone in the team is on the same page about the steps for purchase orders.

In order to make the correct payments at point of sale (POS), the purchase order process in accounting must be clear.

The guidelines should include who is in charge of the approvals and how to contact them if you need to move the process along on your side.

Outline preferred vendor and vendors

Have your preferred suppliers for varying potential purchases ready to go in a list. This will make the choosing process simpler as the ideal options will already be there and no research will be required.

Set KPIs

Putting together key performance indicators that contribute towards an effective purchase order process. This could look like numbers surrounding approval time or the speed of delivery of purchase orders.

Put a staff member in charge of the process

If you have an internal staff member in place to oversee the purchase order process, they can be a touchpoint for any employees who have queries.

 

The benefits of technology for purchase order processing?

Integration capabilities

Purchase management and procurement platforms offer integration capabilities with other tools like Trustpair, best-in-class fraud prevention software. This can add a security brick to these solutions thanks to anti-fraud features including consistent data monitoring in real time.

For example, Trustpair may integrate with a purchase order process in SAP.

Saves time

Technology can automate certain tasks that save time and offer more efficiency. This means that employees can spend more time on other high-priority tasks.

The automation should also increase the overall purchase order process speed.

Increases visibility

As purchase order data is held in one single place with a tool, it increases the visibility that employees have. It also streamlines the visibility process as data can be found quickly.

Increased accountability

A digital trail of the purchase order system will increase accountability. For example, you will be able to see who has approved the purchase order and when.

Use less paper

Simply put, one of the benefits of technology and automation tools is that there is less paper in play. This means that there is less spend on printing costs and your company’s carbon footprint should be reduced.

Recap

The key steps in the purchase order process involve creating a purchase order, approving it, sending it to a vendor or vendors, and negotiating a contract. Then, you should receive the goods, and complete a three-way match before paying the invoice and closing the purchase order. Trustpair can secure the procurement process by integrating with procurement platforms and adding security.

FAQ

The key steps in the purchasing process are creating the purchase order, sending it to the seller, three-way matching, and then closing it out.

Trustpair’s software secures the procurement process by integrating with different procurement platforms. The platform’s ongoing data monitoring throughout the payment chain results in no fraud or mistakes.

Our best-in-class software helps organizations wipe out vendor fraud thanks to automation and real-time account validation. The system controls each payment and vendor details throughout the entire payment chain. It detects any suspicious data or status change and warns financial teams so they can take action.

Finance teams spend less time on manual processes and gain efficiency and more time for high-value tasks. Our services also include extensive customer support and detailed analytics. Don’t wait to protect your business against vendor fraud: take the first step right now!

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