Purchase orders are at the heart of a procurement process. However, most small businesses neglect using purchase orders effectively. Although they purchase goods and services, they don’t always plan their purchases as well as they should. As a result, they end up dishing out more money than they need to.
Even after spending more, if there is an issue with the quality of the goods or services received, they can’t raise a dispute. They battle with substandard suppliers and sub-par customer service every day. Failing to devote enough attention to the purchasing process spikes up their operational costs and shrinks profit margins.
As a result, they are forced to live with little to no profits and higher risk. All of this can be prevented if businesses spend more time formalizing their purchasing process using purchase orders. Purchase orders can help organizations not only control their purchasing activities but also optimize organizational spend.
Here’s all you need to know to simplify your purchase order processing.
How does purchase order processing work?
Given below are the steps involved in purchase order processing, that cover the entire lifecycle of a purchase order.
Step 1: Purchase order creation
The purchase order is prepared by the purchasing team once a purchase request is approved. Once a purchase order is created, it is sent through a purchase order approval process: first to the finance team for budget approval, and then to the requester’s manager to cross-check the purchasing details.
Step 2: Vendor selection
The next step of the purchase order process is vendor selection. Here, depending on the items required, the purchasing team will pick a vendor from their preferred list or use a comprehensive strategy like RFPs to find the right supplier.
Step 3: Order fulfilment
Once the supplier is identified, a copy of the purchase order is sent to the vendor. Once a purchase order is acknowledged and approved by the vendor, a legally binding contract activates, after which the order is fulfilled. A purchase order stays open until the requested items are delivered.
Step 4: Invoice approval and payment
After the items are delivered, the purchase order is compared with the received invoice. If everything is found to be in order, the invoice approval system passes on the approved invoice to the finance department. Hence, the lifecycle of a PO ends here.
Transform purchase orders with a cloud procurement solution
An e-procurement system can take over purchase order management, and offers a host of improvements. You get boosts in efficiency, accuracy, and speed. Here are the specific details.
1. Auto-routed requests, PR-triggered POs, and more
Purchase orders get simplified when you use an e-procurement system, starting right from the purchase requisition stage. The system simplifies this process–simply key in the details of a purchase request. Your eProcurement system can then route requests to all the people involved, in the right order. Once the last stakeholder approves the request, the software initiates a purchase order with the appropriate details.
The purchase order gets routed through the system too, all the way down to invoice approval and payment.
You can instantly access any purchase order you need–no more losing purchase orders in the system.
Additionally, automated routing and relevant notifications ensure that all POs are signed and approved by the right people, at the right time.
2. Automated three-way matching, and other purchasing-focused features
Cloud procurement solutions like Kissflow Procurement Cloud offer more than cloud storage and auto-routing of approvals. For instance, three-way matching checks purchase orders against purchase invoices and requests, eliminating any room for manual error.
3. Purchasing insights
Reports and analysis help you understand what’s going well within the PO process, and where inefficiency is costing you money. Purchase orders are extremely important within the procure-to-pay cycle, and it’s good to have process transparency and visibility. With an eProcurement solution taking care of POs, you have access to:
- the status of any order
- vendor performance metrics
- custom reports and analytics
How to avoid the high costs of purchase order processing
Although the high cost associated with manual purchase order processing has always been a concern to organizations, it was hard to zero in on the exact PO cost. As the cost varied based on the industry and line of business, it was a challenge to set a proper benchmark.
However, PayStream’s 2018 procurement insights report dove headfirst into this topic to gauge average processing costs. In this review, a lot of metrics like the centralization of procurement, the number of manual tasks involved, and the time taken to process a PO, etc were taken into account.
Tasks like processing email, entering data, managing vendors and vendor database, handling internal procurement system, and more were assessed. As a part of this evaluation, PayStream split organizations into three major groups based on the technology they used to process purchase orders—Novice, Mainstream, and Innovator.
Novice organizations, made up of primarily SMBs, ran on manual purchase orders. They had the highest cost per PO and took the longest amount of time to process a PO
Cost Per PO
*Table: Automation Maturity and Cost Per PO- PayStream’s 2018 Procurement Insights Report
Organizations that fell into the Mainstream category typically used automation, at least a little bit, either through their homegrown procurement tool or with the help of an ERP system. These organizations tend to process their POs more efficiently than novice companies. But still, their cost per PO is slightly on the higher side.
Innovators, on the other hand, use cloud-based purchase order systems. Their purchase order process requires little to no manual involvement making the cost of processing a purchase order invoice go down by almost 200 percent when compared to the other two categories.
There are many other benefits in addition to lower processing costs. The three greatest improvements of implementing purchase order best practices through automation are reduced cycle time, enhanced visibility and transparency, and improved control and security.
While purchase order automation might seem like a huge leap for organizations that don’t even have a purchase order process in place yet.
Implementing a purchase order system will not only go a long way in improving not just an organization’s existing bottom line, but also ensure financial and business stability in the long run.
Kissflow was built for cloud-based POs
When the purchasing process of an organization is widespread and uncontrolled, there is no way to control organizational expenses or ensure financial stability. If you’re hassled all day with paper and email-based purchase order processing, a tool like Kissflow Procurement Cloud can help you turn things around.
Kissflow is a comprehensive procurement system that covers the entire procure-to-pay cycle. It extracts purchase order details easily from approved purchase requisitions and sends it to the approval loop without any human intervention. You can integrate this procurement software effortlessly with any other finance or ERP tools you may be using. As your purchase orders are stored over the cloud, you need not lose sleep worrying about security.
Looking for a way to make your purchasing process painless? Say hello to digital purchase orders with Kissflow.