A purchase requisition and a purchase order are two important documents used in the procurement process. Though they sound similar and are often confused with one another, there are some key differences between the two. Understanding these differences and how requisitions and orders fit into the bigger picture of purchasing is critical for businesses looking to optimize their procurement strategy and spending.
In this comprehensive guide, we’ll break down what exactly purchase requisitions and orders are, the benefits they provide, and steps you can take to leverage them effectively as part of an efficient, cost-saving purchasing process.
At the most basic level, a purchase requisition is an internal document used to request a future purchase, while a purchase order is an external document sent to a vendor to order goods or services. Here are some of the key ways they differ:
A purchase requisition comes first in the procurement process. It is created by an employee when they identify a need for a product or service. The requisition outlines what they aim to purchase and requires internal approval before an actual order can be placed with a supplier.
A purchase order comes after a requisition has gone through approvals. It is created by the purchasing or procurement department to formalize the order details with a chosen vendor.
A purchase requisition is an internal document and is not sent to any external parties. It is submitted to decision-makers and finance teams within the company for review and sign-off.
A purchase order is sent externally to the vendor or supplier who will fulfill the order. It serves as a commitment to purchase the outlined goods or services.
A purchase requisition is not a legally binding document. It is essentially a structured internal request that is subject to approval. If ultimately denied, there would be no obligation to purchase.
A purchase order is legally binding. Once created and sent to the vendor after the requisition is approved, the company is obligated to follow through on the purchase.
Implementing clear, efficient systems for purchase requisitions and orders provides immense benefits, including:
With an intake form that prompts employees for all necessary purchase details upfront, requisition approvers have complete data to quickly assess if a request should move forward. Manual back and forth is reduced.
Centralizing spend request data as well as disseminating orders from a single purchasing team provides greater visibility into what money is slated to be spent. This enables better cost control.
With streamlined documentation and reporting around all purchases—from requisition through to order—finance teams have access to the details they need for tighter budget planning.
Multiple checks and controls in a structured requisition and order workflow prevents cases of fraud as requests must go through several high-level approvals.
Ultimately, companies that leverage purchase requisitions and orders position themselves for better financial health and savings through procurement efficiency and optimization.
If your business can benefit from refining its purchase requisition process, here are key steps to take:
Eliminate manual entry by implementing form automation software that allows employees to simply open a customizable requisition form template and provide the data. This prevents errors and incomplete information.
Configure your purchase requisition form with conditional logic and validation checks that enforce company policy around purchasing spend limits, approved vendor lists, allowable cost centers for different departments, and any other rules.
Use workflow automation to route submitted requisitions to all necessary approvers in a clear sequence without any email back and forth or paperwork getting lost on desks. Approvers are automatically notified the instant a request hits their queue.
With requisition status visibility, requesting employees can check where their submitted purchase request is in the approval chain at any time for complete transparency.
Once a requisition gets successfully approved and converted into a PO, ensure seamless data transfer into your ERP so that budgets can be checked and accounting can easily reconcile ordered goods/services upon receipt.
Just as important as an efficient requisition process is having a streamlined system for creating and managing purchase orders. Here are the key steps in an effective PO workflow:
Purchasing takes all authorized requisitions and finalizes the specifics like vendor selection to create corresponding POs. Any further negotiation occurs before order completion.
Double check PO accuracy—including quantities, descriptions, pricing, delivery dates, approver signatures, and other details—before transmission to vendor.
Have processes in place for organized receipt of purchased items, confirming fulfillment aligned to PO specifics, and proper documentation for payment.
Integrate PO data like pricing and vendor invoices back into your accounting system to guarantee smooth invoice processing & payment. Pay only for what was ordered and received based on the PO.
In an efficient procurement process, purchase requisitions and orders go hand in hand. Some key points to remember: