Purchase Orders vs. Purchase Requisitions

Have you ever found yourself stuck because the purchasing process in your project becomes a bottleneck? Maybe you’ve faced delays from slow approvals or lost track of what’s been ordered and when it’s due to arrive.

What is a Purchase Requisition?

A purchase requisition is the first step in the purchasing process. It’s an internal document that you or one of your employees use to formally request the purchase of goods or services. This is especially useful in small and medium-sized enterprises (SMEs) in the engineering and construction industries, where budget control and project accounting are crucial for project success.

Purpose: The purpose of a purchase requisition is to request permission or submit a request to make a purchase. It can be as broad or detailed as your project requires.

Use: It serves as the initial step after identifying the need for a product or service. Submit the document to the appropriate department for approval before moving on to create a purchase order.

Contents: Description of the item or service, quantity, preferred supplier, and estimated cost.

The benefits of Purchase Requisitions:

• Improved Budget Control: Approval prior to purchase helps you stay within budget.
• Better Overview: Clear records of requested purchases provide better control over project finances.
• Compliance and Traceability: Ensures all purchases align with company policies.

Disadvantages of Manual Procedures:

• Time-consuming: The process of approval can delay purchases if obtaining necessary signatures takes too long.
• Risk of Errors: Manual procedures can cause mistakes, especially if information isn’t clearly documented.

Different Types of Purchase Requisitions:

• Standard Purchase Requisitions: For daily operational needs.
• Recurring Purchase Requisition: For repetitive purchases, such as monthly lease agreements
• Capital Purchase Requisitions: For greater investments, like vehicles or special equipment.
• Project-related Purchase Requisitions: For purchases of goods and services specific to a project.

In an effective procurement process, an approved purchase requisition is converted into a purchase order. This ensures that multiple people have reviewed and approved the request, providing extra assurance that the purchase is necessary and financially sensible. It can also help secure the best possible terms.

Checklist: 10 criteria for selecting the right purchase order system

What is a Purchase Order?

A purchase order is a formal request sent to a supplier to purchase goods or services. This document includes details such as what is being purchased, quantity, price, delivery date, and payment terms. It is a crucial element in the procurement process to ensure agreement between you and the supplier on the purchase details.

Purpose: The purpose of a purchase order is to act as a legal document between a buyer and a seller.

Use: Once a purchase requisition is approved it serves as a contractual agreement between the company and the supplier.

Contents: Specific details about goods or services, agreed prices, delivery dates, and payment terms.

The benefits of Purchase Orders:

• Clarity and Control: Ensures agreement on all details among involved parties.
• Improved Budget Management: Clear cost breakdowns improve financial oversight.
• Legal Protection: Provides legal security in case of issues.

Disadvantages of Manual Processes:

• Time-consuming: Both creating and approving purchase orders manually can be time-consuming.
• Documentation deficiencies: Manual procedures may result in incomplete documentation, which can lead to issues later. Proper training of the organization is essential to minimize this risk and ensure a smooth procurement process.

Summary

Purchase requisitions and purchase orders are tools that can simplify your daily operations when managing procurement in projects. A purchase requisition is your internal request to purchase goods or services, providing better budget control and overview. Once approved, it converts into a purchase order, which is the formal order sent to the supplier. This ensures clarity, control, and legal protection in your project.

Using both documents in the procurement process can reduce errors, save time, and improve financial management. If your company handles numerous purchases throughout the year, implementing purchase orders can offer significant advantages.

To avoid the drawbacks of manual processes, consider adopting a modern, cloud-based purchase order system that enhances efficiency. CostTracker is a user-friendly solution ideal for small to medium-sized enterprises working on project-based operations.