Are You Right For Purchase Orders?

First off, what are purchase orders?

A Purchase Order is an instruction from you to your supplier, to supply goods or service at a price that you dictate. The supplier then accepts your purchase order and supplies the goods. Purchase Orders are useful in that they can have pre-approval – so you are only spending money with the right people in an approved way. They formalise the buying process as well so there is less room for error. However, they aren’t always the answer.

For purchase orders to work, you need to be clear in your instructions to the supplier and make sure your supplier is capable of delivering back an invoice that resembles your PO and your request. If a supplier only supplies goods after you fill in an online order, it would be bureaucratic to then send them a PO. The engagement is set as soon as you click confirm on their online order system. The supplier has to be aligned with your process for it to work. So flexibility is required in your buying process.

Some of our customers say that it’s ‘not culturally a good fit’ to use purchase orders. What do they mean by this? Well in the case of an Asset Management company based on Wall Street, with high flying executives on 7 figure salaries, is it a good use of their time to fill out a requisition form when they want to buy something? Or perhaps a start-up where control of spend can be done over a coffee.

Purchase Orders add visibility to expected spend, they add control into the buying process, and they enable the finance team to link vendor invoices with purchase orders and perhaps pay the vendor faster.

What should you do if a purchase order isn’t possible or becomes too difficult or cumbersome to process an invoice or multiple invoices against? Well, it’s then all about the invoice approval process. Making sure invoices get routed out for approval and making sure the invoice approval process is simple so has user engagement. If we take the example of the seven-figure captain of industry, then perhaps an email click to say approved or a mobile app approval is all that’s required. Time is money so this person doesn’t want to be logging in and wasting time and you don’t want them skipping over important invoices that you have to pay.

As with most things in life there is no clear answer but a hybrid system like Zahara that can provide purchase orders as well as invoice processing and approvals will allow the flexibility that’s required. Raise purchase orders to suppliers where you can but don’t over engineer the process so you are creating retrospective PO’s or spending far too much time linking orders and invoices with questionable balances. At the end of the day, if a supplier sends you an invoice, the chances are they want to be paid, and the chances are it’s correct. It’s important that you make that decision to pay with as minimal friction as possible because the next invoice has just arrived and that need looking at as well.

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