What is a Purchase Order System?
If you're a growing business looking for a more effective way of managing your purchase orders, you may have some questions that need answering.
What is a purchase order system? Does my business need it? Who uses it in the business? How do purchase orders work within a PO system? What should I look for when picking the right one for my company? Let's explore in this article.
What you'll find in this article:
- A purchase order is a formal commitment between companies that purchase goods and/or services and confirms details like quantities, pricing, payment terms, etc.
- The purchase order software supports the approval process within the organisation and provides visibility into purchases on a company-wide level.
- Both finance and non-finance staff can make purchase requests within the PO system
- A purchase order system should allow control over purchasing permissions, policies and procedures to prevent unauthorised spend and facilitate invoice processing.
- Opting for integrated finance management software lets employees raise purchase orders across the organisation, making the entire process more flexible and accessible for users.
What is a Purchase Order (PO)?
By definition, a purchase order is a means of generating a formal commitment from one organisation to another to purchase its goods and/or services. What are purchase orders meant to do? POs will often confirm the quantities, pricing, payment terms, delivery details and any other instructions, along with the details of what is being purchased. A purchase order is often sent to the supplier via email, a document or another electronic transmission.
What is a PO (Purchase Order) system?
Whilst a purchase order commits the buying organisation, the purchase order software will support the approval process within the organisation to ensure that the purchase is valid and authorised. It will often apply an approval checking process to help ensure the correct supplier, pricing and products/or services are being requested sought.
A purchase order system shows the finance team all the purchases that the organisation is committed to and allows them to plan for the pending supplier invoices which helps to manage cash flow demands.
It is also a vital means of confirming that the invoices received are expected and in line with the purchases raised. Therefore, purchase order software is commonly part of the organisations main financial management system, such as Access Financials.
Who uses purchase order systems?
The purchase order system is commonplace in most organisations to make frequent purchase requests to their suppliers. Both finance and non-finance staff who have a buying budget and need a means of procuring for their function or projects should be able to access the software.
When you're handling a large volume of purchase orders, meaning you have to take into account different suppliers, staff members and actual purchases, a well-designed system will help you stay in control.
What's more, it will often help people decide the most appropriate suppliers and products/services to purchase and can help them manage their budgeted spend.
Pro tip: Integrated software like Access Financials allows the people around the wider organisation to access and raise purchase orders easily, quickly, and even on the go.
Why should I use a PO system?
Purchase order software will allow you to control which people in your organisation can make purchases and apply approval checking when this is needed. It allows you to introduce a purchasing policy and procedure to stop unauthorised spend.
A purchase order system also allows the organisation to monitor supplier invoices received by matching them to an approved purchase order that has been made. If a supplier submits an invoice for £200 but the purchase order provided is for £150, a purchase order system will help the finance function investigate why this is and prevent paying incorrect invoices.
This checking process, often referred to as invoice matching, prompts the organisation to check that the correct value of goods/services have been received, makes sure the agreed pricing is being charged and also accrue for pending costs on outstanding orders where invoices have yet to be received.
Having a record of purchases and the required by dates gives a means for chasing suppliers where applicable which can have a knock on effect in providing goods/services to your own clients.
What to consider when buying purchase ordering system
There are a number of things that should be considered when you're looking to buy a purchase ordering system. When researching the options, you should consider:
- How many purchases do we make in a typical month?
- Who around the organisation should use the purchase ordering system?
- How easy is the purchase order system to access and use?
- Does the purchase order system work with our existing accounting software or will we need to rekey data between these?
- Would a purchase ordering system help prevent existing unapproved purchases?
- Will the purchase order system help us to better manage our cash flow by controlling our expenditure?
- Do our supplier invoices accurately reflects what we have purchased?
- Do these cost savings justify the investments in purchase ordering software licencing?
The best purchase order system for you
If you are considering new purchase order software to enhance you purchasing process, the purchase order feature within Access Financials may be a great fit for your organisation.
There are alternatives out there though, so we’re happy to help you determine the best way forward, even if you decide your path doesn’t include us - so contact us or book a demo today and let’s see what is going to work best for your organisation.
If you've already got a purchase order system and you're looking to switch, our expert guide explains everything you need to know when switching finance systems, from considerations before starting the project to implementing your new software quickly and easily.
