Businesses often rely on a purchase order (PO) and the number of approval stages it has gone through to organize business transactions, maintain good internal communication, and have a strong vendor relationship.
When it comes to procurement, purchase order approvals are a crucial part of the purchasing process. By automating purchase order approvals, businesses can streamline their purchasing process and make it more efficient. But what exactly are purchase order approvals?
What is Purchase Order Approval?A Purchase Order Approval process is the complete process starting from the time a PO is created for approval, till the time it is accepted by the vendor or the supplier. Only POs which pass through approval levels internally and are accepted by the vendor are considered to be a legally binding contract. For both - the buyer and the supplier.
It is common knowledge that POs are crucial to a procurement process and can help a company streamline workflows and meet its business needs effectively. Purchase order approvals make sure that all business requirements are met on time. This also ensures healthy and long-lasting vendor relationships are maintained.
Due to this, other important aspects such as invoice matching and invoice processing can be easily integrated for better business efficiency.
The Purchase Order Approval WorkflowThe PO approval workflow process will not be standard for every organization i.e. it will vary from one organization to another based on specific requirements. However, the basic flow in which a typical PO approval process functions remains similar.
A purchase order approval process efficiently gets the system ready for requesting and issuing POs as per the company’s needs. Further, it can track every PO as it moves through the process - thanks to multiple levels of approvals. You can also know who has requested the purchases and who has to approve each request.
Here’s how the PO approval workflow process generally works:Identifying requirements and raising a request
It all starts with a basic business requirement for either a product or a service. Once the need is identified, the business unit that has the requirement raises a procurement request to the purchasing department.
Verifying the purchase request and selecting suppliers
Once the need is identified, the purchasing department reviews the request for validity. Once the validity of the request is confirmed, the process of selecting suppliers starts. Often, supplier selection is done by raising a Request for Proposal i.e. RFP.
Purchase Authorization
Depending on the size of the purchase request made, there can be multiple approval levels. It is possible that if the purchase request is a small one, it may be directly authorized by the purchase manager. However, if it is a highly-priced request, it may need to be verified against budgets and may involve PO approvals from managers at the senior levels.
One point to be noted here is that - requests can also be rejected if they are not considered necessary for the business, exceed budget limits, or lack proper information. In such cases, the request may be submitted for approval again.
Preparation of the Purchase Order (PO)
Once the request is authorized, the purchasing department creates a purchase order. A PO contains crucial details including buyer and vendor information, PO number, product or service specifications, delivery terms, and payment information. Once the PO is ready, it is sent to the vendor for acceptance.
Assessing the Purchase Order by the Vendor
Once the vendor receives the above PO, they will assess the PO i.e. check for any outstanding dues if it is an existing buyer. If it is a new buyer, the vendor conducts detailed scrutiny of the new buyer's payment capacity.
Acknowledging the Purchase Order by the Vendor
If all information on the PO is correct, the supplier approves the PO by signing the document. Once the supplier and buyer both sign the PO, it becomes a legally binding contract between the two parties.
Most companies contemplate the correct time to implement or introduce a PO approval process in their organization. Simply put, it makes sense when the number of purchases your business makes exceeds your ability to mentally keep count of it. That’s how simple it is and that is how crucial it is to implement a PO approval process.
It just makes sense when you know it simplifies and streamlines processes for your organization. How? By creating a record of every single request and purchase order and by generating reports that will help your company get a sense of what to buy and when. Eventually, this will help to reduce unnecessary purchases and save huge costs for the company.
How a purchase order approval workflow process changes purchasing?
1)Increased transparency and visibility
2)Accurate forecasting and informed decision-making
3)Saves time and money
4)Significantly reduces human error
5)Effective collaboration
6)Better operational efficiency
7)Helps control and monitor purchases
8)Facilitates easy audits
When the entire purchase order workflow is automated, it can make business processes more effective and efficient. Automated processes are much faster and less prone to errors which save time and money for your company. An automated PO approval process helps in optimizing the entire workflow and makes approving a PO easier, faster, and more profitable for organizations.
With Eyvo’s cloud-based digital procurement software, you get access to multiple approval levels which guarantees added security and no duplicate orders. Our paper-free processes will ensure that your organization gets the best of approvals and will positively impact your bottom line.
With automated PO approvals, your company can effortlessly track every order and generate management reports which will facilitate easy audits in the future.
so Contact us and schedule a demo with us now!
USA +1 888 237 9801
UK +44 (0)560 307 4470
sales@eyvo.com
