Plato Data Intelligence.
Vertical Search & Ai.

Purchase Requisition vs Purchase Order


The purchase ordering process in any company is made of many steps, starting from identifying the requirement to making the purchase. Two important intermediate steps are purchase requisitions and purchase orders.

Purchase requisitions, also called purchase order requisitions and purchasing requests, are the first internal step in a company to coordinate the purchase ordering process. In this, the employee/group with a requirement makes a request for a purchase to the purchase department.   The purchase requisition step offers stakeholders the choice and time to make informed decisions regarding a purchase.

The purchase order is the official  document that the company issues to the vendor after approval of the internal purchase requisition.

The following sections explain the what’s, why’s and how’s of the purchase ordering process. We compare purchase requisitions versus purchase orders and their joint importance in coordinating the purchase actions of a company without waste or want.

Need for a Systematic Purchase Ordering Process

When a business is small and operates on small bottom-lines,  the processes to run it are simple and straightforward.  The functioning of a mom-and-pop corner-bakery, for instance, involves simple purchase order processes; the baker simply buys extra flour and sugar for the holiday season.  While this system is quaint and simple, so are the bottom lines and any expansion of operations would result in a catastrophic breakdown of the bakery’s operations.

As the bakery expands its business,  à la Small Time Crooks, a better purchase ordering process (material/services) becomes necessary. This system must include a factor of accountability in which any requested item/service must be deemed necessary for the operation.  For example, an indiscriminate purchase of ten pounds of sugar per pound of flour for a holiday-cake could point to mismanagement.  Or a very sweet cake!

Thus, as a business expands and increases its scale of operations, it becomes cumbersome to manage internal and external correspondences, expenses, and the purchase details. Without a systematic purchase ordering process, there could be mishandling of funds and mismanagement of resources and supplies.  An organized purchase ordering process that mandates purchase requisitions and purchase orders can enable the purchasing and financial departments to better manage funds and resources. The understanding of purchase requisition vs. purchase order requires an understanding of what each of these is.

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auto-collect documents into your AP workflow

The Purchase Requisition

A purchase requisition is an inter- or intra- departmental document or form that defines a business need that may be in terms of materials or services, the cost associated with that need, and other pertinent information that the purchase department might find pertinent.

In our scaled up bakery, for example, a formal and comprehensive purchase requisition by the baker would enable the purchase department (manager? owner?) to analyze the cost-use-benefits of buying extra flour and sugar and approve or deny the purchase of the items accordingly.

Purchase order requisitions serve a variety of purposes and differ between businesses depending on their core competence. A small business may require a requisition form for all purchases while larger companies that work with a larger bottom line could require purchase requisitions only for purchases that exceed a specific amount. There may be multiple steps between purchase requisitions and approval/denial of the purchase, depending on the operating principles of the company. The intervening steps may include selection of suppliers and getting a quote in addition to assessing the needs of the requesting entity.

A typical purchase requisition document workflow or form must have the following information:

  • Who? The originator of the sourcing needs.
  • When? The due date of the supply/service requested.
  • What? Quantity of product or duration of service requested.
  • Why? The cost-benefit analysis of the product/service requested.
  • Where? A recommended vendor offering the product/service requested.
  • How? The protocols for ordering the product/services, if any.

In addition, each requisition must have a unique number or ID for filing and matching with a subsequent purchase order, if approved.

The Need for Purchase Requisitions

  • Purchase requisitions help in tracking the consumption patterns of the company for future budgeting operations.
  • Purchase requisitions help in planning for inventory to prevent time delays in the business’ operation.
  • The possibility of approving or denying the purchase request helps in preventing wastage and introduces a stopgap for unnecessary spending.
  • Cashflow problems can be solved using purchase requisition logs.  A history of purchase requisition forms would help to identify the cause for excessive cash spend by particular subunits.
  • Purchase requisition forms offer pointers on employees’ perspectives of business needs. A frequently requested item/service may require the business to take permanent steps to seamlessly deliver the item/service, while a trackback to unnecessary purchases, often identified during audits, could necessitate course corrections in business practices.

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touch-less invoice processing and approval routing

The Purchase Order

Once a purchase requisition for goods/services has been approved by the appropriate department(s), the order must be placed with the vendor. A purchase order is a formal binding document between the procuring company and the vendor, that specifies the quality and quantity of the goods/service needed, the time frame of the order and the price/costs that the former will pay the latter for the goods/services procured.

Thus, going back to our bakery, once the kitchen team’s purchase requisition for flour and sugar has been approved by the purchase department, the latter sets up a purchase order or PO to the chosen grocery vendor to purchase the supplies from them, and the vendor supplies the flour and the sugar for the price specified in the PO, within the time also specified in the purchase order.

The supplier/vendor may also have an internal approval process for the purchase order raised by the business.  Usually, since the PO is drafted after negotiations between the client and vendor, the POs are quickly honored by the latter. However, the vendor may reject the purchase order for reasons such as conflict with agreed pricing, incorrect PO or unavailability of the product. Prior payment issues or outstanding invoices can also cause invalidation of POs by the vendor. Some large companies require POs for transfer of goods between internal departments.

A good purchase order must have the following elements

  • Who? Details of both the buyer and vendor, their names, billing addresses, mailing addresses, phone numbers, email IDs  etc.
  • What?  Product/service specifics such as quantity of goods, description, quality expected and unit cost.
  • When? The date of issue of the PO and the anticipated delivery date/period.
  • How?  The nature of delivery of the products/services.
  • How much? Cost specifics: total price of purchase, taxes, exemptions, anticipated discounts, refund policies and payment methods allowed.
  • In addition, each purchase order must have a unique PO number that will be used for subsequent Invoicing and payment operations.

The Purchase Order Workflow

While the purchase order workflow varies with companies, there are a few common steps:

  • Creation – The order information must include a unique PO Number that follows the order throughout the entire purchase-to-payment cycle.
  • Approvals – Approvals may be in the levels of the financial team, management or executive and will be in accordance with spending limits or the available vendor pool of the businesses.
  • Dispatch – After internal approval, the PO is sent to the vendor, at which point, it may be subjected to additional approvals by the vendor.
  • Binding contract – The purchase order form becomes a legally binding contract once accepted by the vendor. In this contract, the vendor agrees to fill the order as specified and the buyer agrees to pay for the goods or services.
  • Delivery – The vendor supplies the product or service embodied in the purchase order.
  • Three-way matching – The accounting teams of the company that raised the PO may perform an invoice matching (three-way matching) process to match the purchase order with the invoice and the delivery note.
  • Closure – The order is closed, and payment is processed.

The Need for Purchase Orders

  • POs prevent overspending and repetitive purchases.
  • Specific vendor information helps in eliminating invoice fraud.
  • Written data eliminates overages of deliverables
  • POs are important in financial and stock audits to prevent internal inconsistencies or malpractices.

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auto-sync AP data into ERPs

Automating the Purchase Ordering Process

It can be seen that for a seamless and systematic purchase ordering process, it is no longer “purchase requisition vs. purchase order”, but “purchase requisition & purchase order”.

With increased scales of operation that entails higher frequency and quantum of purchase operations, paper-based documentation of purchase requisitions and purchase orders can become tedious both in terms of management and processing.

Automating procurement can help in easing the process. A purchase requisition can be automatically converted into a purchase order through electronic purchasing systems such as ERP software.  Some software can integrate with existing inventory tracking solutions used by companies and thus ensure accuracy and time/cost savings.

Automating the purchase ordering process, from generating a purchase requisition to creating a PO and finally doing a three-way matching offers the following benefits to the organization:

  • Visibility: An automated system allows all stakeholders involved in a purchase to have access to all necessary documentation.
  • Absence of paperwork: A digital record of all documents involved in the purchase process helps better organization and storage of data. It offers an efficient filing system that enables easy access to all documents by all stakeholders.
  • Elimination of Bottlenecks: Digitising the purchase ordering process can prevent time delays associated with physically moving documents between the various stakeholders for reviews and approvals.
  • Enhancing compliance: The maintenance of records allows for regulatory compliances and easy audit processes in future.
  • Detection of Fraud and mishandling:  Having a digital record of all transactions enables companies to detect and prevent fraudulent activity.
    The future of the purchase ordering process

Automation breeds efficiency and can redefine end-to-end purchase ordering processes to leverage long-term value. Digitally enabled sourcing/procurement would advance business strategies by turning vendor-client relationships into a competitive advantage. The advent of AI, blockchain and IoT has resulted in automation tools that can run the entire procure to pay process seamlessly.


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