A Guide to the Purchase Order Approval Process
Learn what a purchase order approval process is, why it’s necessary, and tips for mapping out one that works for your business.
Businesses across all industries rely on outside vendors to provide goods and services that help them accomplish their goals. In order to maintain control over finances and ensure that all cash outflows are approved and accounted for, companies need to have an efficient purchase order approval process in place.
Read on to learn what a purchase order approval process is, why it’s necessary to have one, what it should look like, and some tips for designing and managing one that works for your business.
What Is a Purchase Order Approval Process?
A purchase order approval process is an internal system for authorizing purchase orders. In other words, it provides businesses with a mechanism for processing, reviewing, and approving cash expenditures. Companies use purchase order approval processes across multiple departments, including procurement, marketing, sales, production, finance, and HR.
It’s important to note that a purchase order is different from a sales order. A business sends a purchase order to vendors to confirm purchases before they occur; once work is completed, the vendor invoices the seller and references the approved purchase order number.
Why Is It Necessary to Have a Purchase Order Approval Process?
Organizations tend to have many individuals with purchasing power, ranging from rank-and-file employees to managers and directors. Because of this, it’s necessary to manage how people spend money.
Without a system in place for managing purchase orders, a business could easily go over budget and wind up in debt. Purchase orders help teams communicate, vet purchases, and avoid costly mistakes. With all this in mind, let’s examine some additional reasons why purchase order approvals are necessary.
Improve Order Accuracy
It’s very easy to make errors when placing orders—especially in fast-paced environments. Inaccurate orders can be costly, leading to disputes with vendors. They may also lead to order delays, project slowdowns, and customer complaints, among other bad outcomes.
To illustrate, imagine a healthcare provider placing an order for medical supplies. Purchasing the wrong item or amount could create significant problems, potentially impacting patients.
Nailing down a purchase order approval process helps avoid these kinds of serious mistakes by allowing multiple team members to review and authorize transactions.
Companies need to think strategically whenever they buy things, particularly when they’re purchasing large quantities of items, expensive systems, or sensitive materials that require advanced care.
For example, imagine a small business that’s opening a new office. In this case, company leaders need to communicate with each other before buying items like tables, desks, and computers. Buying items at the wrong time—or making the wrong purchases—could lead to storage issues and disputes. With a purchase order approval process in place, everyone stays on the same page.
Without a formal approval process in place, it can be difficult to track team members down and get them to sign off on purchases. This ultimately slows down operations and leads to unnecessary delays. When things don’t work out as well as they ought to, it can also lead to finger-pointing and blame.
With an efficient automated approval process, companies can save time and reduce headaches when requesting order approvals.
Team members tend to share credit card accounts, which makes it hard to track orders. As a result, companies often have a difficult time tracking orders to individual employees.
By using an official system, leaders can easily trace purchases back to individual employees to ask questions and gather information whenever issues arise. This helps improve accountability and ensures that all purchases receive proper ownership.
What a Purchase Order Approval Process Should Contain
Since every organization’s needs are different, companies usually have a unique approach to the purchase order approval process. However, the following process can serve as a basic framework that you can modify to fit your needs.
Generate a Request
The purchase order approval process should contain a mechanism for submitting an official request.
Some companies prefer to use simple forms or Excel spreadsheets for order submissions. More and more companies, however, are choosing to streamline the process by creating mobile applications. Creating a mobile application for purchase order approvals can enhance security, reduce data entry errors, and make it easy to attach items like photos or supporting documents.
Approve the Request
After submitting a request, the item should flow to the proper team members for internal approval. For example, an employee may submit an order approval process for supplies to a manager, who then sends the request to a supervisor or department head. All purchase orders should have a final approval mechanism in place so that someone in charge can sign off on the item.
Issue the Purchase Order
After an order receives internal approval, the request should flow to the vendor. The vendor must then sign off on the purchase order and send a sales order before proceeding with the transaction.
It helps to record the vendor’s response in a centralized platform to avoid communication issues and keep workflows moving. Companies often experience order problems when they fail to communicate properly with vendors after approving purchases internally.
Receive the Item
The final step is to receive an order and match it to the original invoice. Once the order is complete, the team should close out the order and save it for record keeping.
How to Design and Implement a Purchase Order Approval Process
Now that you have a better idea of why purchase order approval processes are important and what a general process looks like let’s take a look at how you can create and implement a purchase order approval process.
1. Figure Out Your Current Purchasing Process
The first step is to analyze how your team is currently making purchases. To kick off the process, consult with different department heads and try to get a thorough understanding of how each team handles purchasing.
2. Pick a Platform
It’s critical to have a single system for managing purchase orders. To ensure everyone uses your new process, start by determining what type of workflow works best for your company's needs. For example, your company may prefer traditional email communication. If your business is going through digital transformation, a chat application that everyone works out of every day could be a good fit. Companies that rely on Slack can automate purchase approvals easily with a solution like Wrangle.
3. Determine a Hierarchy
Next, you should pick out the key players within your company who need to sign off on purchase approvals. This may include managers, department heads, finance teams, and executives.
Best Practices for Managing Purchase Order Approvals
As you prepare to move to a new system, keep the following points in mind to ensure a smooth transition.
Team members are going to have questions throughout the purchase order approval process. Consider using a platform like Slack to make it easy for team members to communicate as questions arise.
Monitor Your Process
Purchase approval workflows may change over time as companies grow and expand. Keep an eye on the process, and make changes whenever necessary to ensure your process stays up-to-date and effective.
Hold a Training Session Before Transitioning
Making the leap to a new process approval system may create confusion for some employees. Consider holding a lunch-and-learn session to explain the new system and train your team members.
Why Wrangle Is Great for Purchase Orders
Many companies are using Slack for purchase order approvals—a great option that comes with one minor drawback. Slack is very demanding for employees, and it’s easy for team members to miss important communications with so many notifications and so much noise.
Wrangle solves this problem by automating workflows and ticketing in Slack. With Wrangle, you can rest comfortably knowing that all important communications are getting through to their intended recipients. This keeps approval workflows moving efficiently while minimizing stress.
Setting up a purchase approval in Wrangle can be done in minutes. You build your process on the web, but everyone requesting a PO will do so in Slack. Wrangle will automatically keep them up-to-date in Slack throughout the process.
- Add Wrangle to your Slack workspace (it’s free):
- Use a Wrangle template or build your own PO process from scratch.
- We’re using Wrangle’s PO template. The first step is to decide what information we want to collect on your PO intake form.
- We have several approval steps for our purchase order. For each, we set the approver and the Slack channel where we want updates to be posted. Here, we selected Beverly Crusher as the approver, and updates will be posted in the procurement channel.
- We can even automate approval across departments. Here we’ve added a step for our legal team to review and approve the PO.
- When we’re finished, we save our workflow, and it is automatically available in our company Slack channel. From here, users can access the PO request simply by typing /wrangle or by going to the Wrangle app icon in Slack.
- We selected the Purchase Order Request Workflow. Now, Slack will redirect us to a form where our users can input the relevant information for their PO.
- Once submitted, we’ll see a confirmation that the request has been posted in Slack. From here, the manager can confirm, deny or re-assign the purchase order request.
- The Wrangle web interface provides a birds eye view where you can see all your requests. You’ll still be able to see them in Slack as well.
Managing approvals in Slack maximizes transparency and minimizes miscommunication. It also helps avoid stack overload, a common problem faced by businesses today. To learn more about how Wrangle can improve your purchase order approval process, add Wrangle to your Slack workspace today.
This post was written by Justin Reynolds. Justin is a freelance writer who enjoys telling stories about how technology, science, and creativity can help workers be more productive. In his spare time, he likes seeing or playing live music, hiking, and traveling.
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