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The Order Blog is the go-to resource for finance and operations professionals who want to grow their business.

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The order team

Purchasing is a vital company function that administers the biggest cost in organizations: buying goods and services to drive the business forward. 

Despite its outsized importance, many business owners don’t have a clear understanding of how to optimize the purchasing process, how each component of purchasing affects business outcomes, and why stronger purchase requisitions (and purchase order processes) drive capital efficiency. 

Let’s look at the misconceptions about the purchase requisition. 

We’ll discuss: 

  1. What a purchase requisition is
  2. How it fits into the big picture of purchasing
  3. The differences between a requisition and a purchase order
  4. Why improving both these documents boosts your company’s financial strength

Purchase requisition is the internal process of requesting procurement of specific goods or services. A stakeholder identifies the need for materials, services, or software and documents the parameters and requirements of the proposed purchase. 

They then communicate these needs to the purchasing department. This request begins the process of seeking finance approval for the purchase, identifying the best supplier, completing the order, and arranging payment.

Purchase requisition may be used for direct procurement (purchases tied directly to a project budget) or indirect procurement (purchases for business needs, such as office supplies). Higher-value purchases typically undergo the purchase requisition process in order to gain approval from the procurement department, finance lead, or the purchasing officer.

What is a purchase requisition form?

A purchase requisition form (sometimes referred to as an intake or request form) is the official internal document a stakeholder uses to outline and initiate purchase requests. 

While templates from various organizations look different, each purchase requisition form performs the same functions. It acts as a record of the stakeholder’s request, contains all information necessary to complete the purchase, and helps finance develop the purchase order later in the process.

Contents of a purchase requisition form

Every company has unique requirements for submitting purchase requisitions for approval. At a minimum, a completed purchase requisition form should include the following information:

  • Date of request
  • Name and department of the requestor
  • Vendor name (if known) and contact information
  • Site location for delivery of materials or services
  • Purchase requisition number
  • The business case for the purchase
  • Detailed item and quantity information
  • Delivery and use timelines
  • Preliminary cost and/or budget information
  • Any information necessary for accounts payable processing

Depending on the type of purchase and the internal process for your organization, you may be asked to provide several potential suppliers for the materials, services, or software you need. You may also need to provide preliminary evaluation of these suppliers as groundwork for the negotiation and purchase. 

What is a purchase order?

A purchase order is an external document that outlines the finalized purchase details for materials or services. 

Unlike the internal purchase requisition document, the purchase order is the formal request to the supplier to procure the goods in question. Purchase orders are issued when a requisition is approved. Purchase orders are also a legal document outlining the deal between a buyer and supplier. The prices, quantities, and other information are all final.

Purchase requisition vs purchase order: What’s the difference?

The terms purchase requisition and purchase order are sometimes used interchangeably, but they are two different components in a company’s purchasing system

Purchase requisitions are internal documents meant to facilitate the internal process of spending approval. They:

  • Describe the desired features of a proposed solution or raw materials order 
  • Outline required delivery dates or performance estimates from the supplier 
  • Provide a paper trail for the purchasing process from inception to conclusion

Purchase orders are external documents used when placing orders with a supplier. They:

  • Codify the agreed-upon features and parameters discussed during the negotiation 
  • Give performance or compliance deadlines for delivery and acceptance of goods 
  • Outline the payment structure, acceptable payment methods, and terms & conditions
  • Provide an audit trail for deliveries and provide data necessary for future budgeting

5 steps in the purchase requisition workflow

Purchasing is the most important segment of the entire procurement process. It represents the largest source of expenditure in the company and has the greatest potential to impact both your topline and bottomline performance. Therefore, a solid purchase requisition and order process are critical to long-term financial success.

The 5 important steps of a purchase requisition workflow are:

  1. Complete the purchase requisition form and submit it for approval
  2. Get necessary approvals from relevant departments including department managers, legal, security, and finance
  3. Receive final approval from the finance department. If the purchase requisition is rejected, get further information and make necessary changes 
  4. Receive price quotations from the supplier(s) in order to complete the purchase order 
  5. Create a purchase order (see more on this process below) 

How do purchase orders work?

Every purchase order process follows a reliable series of steps that allows the buyer to get what they need and the seller to fulfill the order in a timely and accurate manner. These steps are: 

  1. Upon approval of the purchase requisition, the finance team develops a purchase order to communicate its intention to buy from a specific supplier. 
  2. The finance department checks the necessary documentation for accuracy and completeness in preparation to transmit the purchase order.
  3. Finance transmits the order to the supplier to begin the fulfillment process. 
  4. The supplier ensures all line items are accounted for and available and begins the fulfillment process.
  5. Once order picking is complete, the supplier delivers the requested materials to the customer as outlined in the purchase order.
  6. The stakeholder or department confirms the accuracy of the delivery and approves the invoice for processing. 
  7. The accounting department arranges payment according to the terms outlined in the purchase order. 

Why you should enforce purchase requisition in your procurement process

Purchase requisition plays an important role in maintaining effective spend management and enforcing acceptable purchase standards for the stakeholders in your organization. It codifies and supports the approval process for all purchases exceeding a certain dollar value. This gives the organization high visibility into the money it’s spending at a given time. 

Creating and administering a well-defined purchase requisition process provides several benefits to the organization.

Smoother approval process: Purchase requisitions are essential for collecting the necessary information for an order. With a complete and thorough requisition form, approving departments have everything they need to greenlight a purchase. This cuts down the time needed to process requests by eliminating the time-consuming back and forth of approving purchases without all the details at hand. 

Better inventory management: A well-documented purchasing process ensures that all relevant procurement data is readily available. This includes dates, quantities, and shipping information for purchased materials and components. With increased visibility into what you’re buying and where it’s heading, you’ll reduce instances of inventory shortfalls, avoid overpaying for last-minute materials purchases, and improve future budgeting and capacity planning. 

Cleaner financial audits: Activities such as three-way checking and compliance documentation make your procurement system more efficient and less vulnerable to issues. Data centralization means you’ll have readily available information on critical accounting data, product discrepancies, compliance shortfalls, and inventory variances.

Fewer spending leaks: A robust purchase requisition and ordering system eliminates the places where money can go missing. It creates accountability for every request, acts as a source of truth for purchases, and ensures that every purchase meets organizational standards for performance and risk.

As organizations grow and scale, enforcing purchasing best practices proves challenging. Procurement software improves your purchase requisition and ordering process. The right software tool streamlines the purchasing process by:

  • Using automation to eliminate time-consuming tasks
  • Setting up easy-to-track approval workflows
  • Automating validation of orders and invoices
  • Integrating payments to make the purchasing process seamless
  • Centralizing data for easier financial reporting, budgeting, and audits

Is your purchasing process suffering from unnecessary and expensive cash leaks? Learn how to avoid the biggest money-wasting process issues by downloading our free guide, 5 Ways your Purchasing Process is Leaking Cash, (and how to fix it).