We have written many articles on purchase orders, but one key term that continues to cause confusion and mixup is purchase requisitions.
In this blog post, we highlight the differences between purchase requisitions and purchase orders, and why purchase requisitions are imperative in your organization.
Purchase requisition vs purchase order: what is the difference?
What is a purchase requisition?
Purchase requisitions are documents used when team members need to make a purchase on behalf of their organization.
Quite simply, a purchase requisition is an official order used to inform department managers or purchasing officers about a decision to make a purchase. This prompts the purchasing department to start the purchasing process. The finance team will also use this document to coordinate reporting procedures with the accounting department as well.
What exactly is a purchase order?
After a purchase requisition is made (and the purchase is approved), the purchasing department will generate a purchase order that they will send to the vendor.
This legally-binding document outlines exactly what the organization intends to purchase.
The importance of a purchase requisition in for an organization
In any organization, there is always the need for supplies or materials and equipment. These may be office supplies, consumables, machines, and other equipment.
But, when organizations allow departmental managers to place orders directly with suppliers, it’s all too common for fraud to occur. To counter this risk, an organization will develop a procurement team, who dedicate time to placing orders with vendors on behalf of other departments.
Most importantly, the purchasing team will follow a purchase requisition workflow. This reduces the risk of fraud and creates an audit trail between these departments so that each person involved in a purchase can be made accountable.
The importance of a purchase requisition form
One of the internal documents used for departments making a purchase is a purchase requisition form. Using this form allows teams to give vital purchasing information to the purchasing team, who can then place accurate orders on behalf of the rest of the organization.
For example, if a finance department wants to purchase financial software to make their work easier and to improve security, they’ll need to use a purchase requisition form. The Head of Finance – or the person responsible for purchasing requisitions within the finance team – will make a formal request for the software.
Word-of-mouth purchasing is an ineffective way to reduce fraud. Instead, internal documents like purchase requisitions help validate purchases. It is on the strength of this document that the purchasing department will initiate the procurement process until the finance department acquires the new system.
When the purchasing department receives a requisition form, they are required to action upon it. They can either approve, alter, or even deny requests made by departments. If they do deny a request, they must provide adequate reasoning why the request was denied. Upon approval of a purchase requisition, procurement teams acquire the authority to action a purchase order form. It’s at this point that they actually make a purchase.
So, why are purchase requisitions important in the procurement process?
1. They Initiate the purchasing process
Departments inside an organization will, from time to time, need materials. And the purchasing request will initiate the purchase process. The purchasing department will make a purchase based on the strength of a purchase requisition form. If there are any issues, the document will act as evidence when it comes to questioning things like communication.
2. They’re an effective control tool
Where there are no proper checks in place, a team member may engage in fraud. Quite simply, they might order materials for personal use, rather than on behalf of the organization.
With a formal purchase request, there are measures in place to reduce the risk of fraud, and a purchase request must go through a number of hands to ensure its accuracy as well as need. The departmental manager will have a look at it before sending it to the purchasing department, where it undergoes further scrutiny before a purchasing order is sent to the vendor.
A purchase requisition is a formal way of issuing a purchasing notice. Along with it, there is evidence that a department made a purchase request, and the accountability of that organization spend will transfer from the department in question to the purchasing team.
This is important for auditing purposes. The purchase requisition document can always be counterchecked to ascertain the facts.
3. They protect the organization from fraud
With requisition orders in place, the risk of fraud is greatly reduced. In short, purchase requisitions make it hard for team members to purchase goods and services for personal use using organizational capital.
With an audit trail in place, there is greater protection over organizational assets. A requisition order is proof that something was ordered. It can be followed up on and actioned upon. It also becomes easy to trace assets in case there are any issues regarding organization assets.
4. Purchase requisitions centralize the procurement process
Purchasing departments – and purchase requisition workflows – centralize all business spending. This offers central control over all business spending, and makes it easy to manage what goes out, when, by who, and to whom.
Likewise, purchasing managers benefit from this. Because they manage all team spending, they can bundle purchases together and leverage their organization’s buying power to negotiate more favorable terms.
A centralized purchasing system also speeds up the procurement process. This means that there are minimal departmental delays, something that greatly affects a business organization’s efficiency levels.
Purchase requisitions: critical documents for successful spend management
A purchase requisition is nothing more than a document. But, it’s this document that plays an important role in an organization’s procurement process. It is a control tool, a fraud stopper, and a vital component in authorizing purchases on behalf of an organization.