If you use spreadsheets to create more than 20 purchase orders monthly,  you know the process is time-consuming and error-prone. 

The result? Wasted time, frequent stockouts, and an overreliance on cumbersome Excel sheets.

A purchase order system can transform how you manage procurement, offering significant benefits like:

• 45% reduction in time spent creating purchase orders
• 20% fewer stockouts by ensuring timely deliveries
• Complete elimination of spreadsheet-based order tracking

In this guide, we’ll walk you through how to choose the right purchase order system for your business. You’ll discover actionable steps to streamline your procurement process, cut costs, and improve operational efficiency.

Ready to simplify your purchasing process? Schedule a demo with ProcureDesk to see how our solution can work for you. Click here to see it in action

What is a purchase order system?

A purchase order (PO) system is software designed to streamline the creation, issuance, and tracking of purchase orders. 

The official Wikipedia definition of a purchase order is as follows

“A purchase order (PO) is a commercial document and first official offer issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services. It controls the purchasing of products and services from external suppliers.”

It is a vital spend management tool for businesses, ensuring that procurement processes are efficient, transparent, and error-free.

Core Functions of a Purchase Order System

A purchase order system simplifies the procurement process through three essential steps:

1. Create a Purchase Order Request
   Employees who need to procure a product or service initiate a purchase order request. While small purchases may not require a PO, major purchases almost always do. This step formalizes the purchasing need and sets the stage for approval.
2. Approval of the Purchase Order
   Before a PO is sent to the supplier, the appropriate stakeholders, such as department heads or the finance team, must approve it. This ensures the purchase aligns with budgets and company policies, preventing unauthorized spending.
3. Sending the Purchase Order to the Vendor
   Once approved, the purchase order is sent to the supplier. This step can be time-consuming for companies relying on manual processes, leading to inefficiencies. A purchase order system also sends the purchase order to your accounting or ERP system.
4. Streamlining Order Processing and Inventory Management

A purchase order system enables businesses to monitor order processing and inventory levels in real-time. By integrating with inventory management systems, businesses can optimize stock levels, reducing the risk of overstocking or stockouts. Automated notifications for order status updates enhance efficiency, keeping stakeholders informed at every step.

Types of purchase orders

There are different types of purchase orders, and the purchase order management system should support all of them. Here is a brief overview of each:

1. Standard Purchase Orders

These are the most common purchase orders used for single transactions. They include detailed information like item descriptions, quantities, prices, and delivery terms.

When to Use: Ideal for one-time purchases such as office equipment, bulk materials, or other non-recurring procurement needs. They provide clear documentation and real-time tracking for individual transactions.

2. Planned Purchase Orders

These purchase orders outline future purchasing needs with tentative delivery dates and quantities.

When to Use: This PO method is best suited for forecasting and managing inventory levels, especially in manufacturing industries where supply chain predictability is crucial.

3. Blanket Purchase Orders

A blanket PO covers multiple purchase requests under one agreement, usually for a set period or a spending limit. It eliminates the need to create separate orders for recurring needs.

When to Use: Use this for repetitive purchases like office supplies, monthly maintenance services, or ongoing vendor contracts. It streamlines approvals and reduces administrative overhead.

Choosing the Best Purchase Order System

In this section, we will discuss the key features of a purchase order system. For some providers, a purchase order system can also be part of procure to pay platform.

When you try to find the best purchase order software for your organization, use this checklist to review the key requirements and how well the purchase order system meets those requirements.

We will use our system ProcureDesk as an example, but you can see these capabilities are supported by all well-designed purchase order management software.

Purchase Request

A purchase requisition process provides cost control by ensuring that the purchase is approved before making a purchase. Whether you are using a purchase order process or credit cards for purchase – A requisition provides a robust process for controlling costs.  

How it helps:

• It provides a central dashboard for employees to track their purchase requests. Employees no longer have to chase people for approvals; they receive real-time notifications when approval is required. 
• A requisition process provides a mechanism for employees to purchase products or services they need for running the business.
• It eliminates the need for manual purchase requisitions and back-and-forth emails.
• It helps you with cost control because all purchases are pre-approved, and the management has the opportunity to review and approve or reject the purchase.

Here is an example of how a purchase requisition works in ProcureDesk:

Budget Tracking

A PO software with budget tracking capabilities allows the finance to set up budgets and control costs. 

Budgets can be set up by department, chart of accounts, or any combination that best suits the company. With Budgets, you can control costs and provide stakeholders with budget visibility.

How it helps:

• With Budgets, you can see real-time consumption. So no more surprises at month-end regarding exceeding set budgets.
• Your stakeholders can confidently approve the purchase requisitions because they always have complete visibility into the available budget.
• It helps you build a cost-conscious culture because everyone knows the allocated budget and the remaining amount.

Here is an example of how the Finance team can set up budgets for cost control:

Catalogs

Catalogs help improve the purchasing experience of the employees by providing the ability to browse frequently purchased items and quickly add them to their shopping cart.

With 200+ punchout catalogs, ProcureDesk helps companies streamline procurement while maintaining control.

How it helps:

• With catalogs, you can significantly reduce the time spent on creating purchase requisitions.
• It helps you save costs because you can route the employees to your preferred vendors.
• It helps you consolidate vendors because, with catalogs, employees already know who your top vendors are. So they don’t create additional vendors for similar products or services

Here is how a punchout catalog can simplify purchasing for you using ProcureDesk:

Purchase Order Workflow And Approvals

A purchase order management process allows you to route purchase approvals to different stakeholders so that the spending can be authorized.

You can easily route the request to department budget owners with flexible workflows. That way, they have complete visibility into what is being purchased.

How it helps:

A flexible approvals process helps with the following:

• No more emails for approvals, as approvals are managed in one system.
• With the help of flexible purchase approvals, you can route the request to different stakeholders. For example, a spend over $100,000 needs to be approved by the CEO or CFO.
• You get a complete audit trail of approvals so that you can meet your compliance requirements.
• With a mobile app, you can approve the requisitions on the go to speed up the approvals and reduce the purchase order process.
• Automated email notifications ensure that their request for approval is not lost.

Here is an example of how a flexible workflow might look like in ProcureDesk:

Purchase Order

The purchase order creation functionality allows you to create purchase orders and send the purchase orders to different vendors.

A purchase order is a legal document that is an offer from the buyer to the supplier. Once the supplier acknowledges the order, the purchase order becomes legally binding.

How it helps:

• The purchase order feature eliminates the need for manual purchase orders. No more manual PO creation!
• It provides you with a central place to track all your purchase orders. Instead of keeping purchase orders in your computer folders, you can track them in a system.
• A purchase order process lets you control your cash flow better because you can instantly see committed Spending.
• It provides an online purchase order system and ensures better supplier management.

Here is an example of a system-generated purchase order in ProcureDesk:

Purchase Order Tracking

Purchase order tracking functionality lets you track purchase orders through its life cycle.

A purchase order tracking functionality allows you to answer the following questions:

• Did the vendor acknowledge the purchase order?
• Has the product shipped, and where is it in transit?
• Is the product delivered to the end-user?

How it helps:

• The most significant benefit of purchase order tracking is that you always have the latest information about purchase orders in one place.
• No more spreadsheets for tracking vendor purchase orders.
• No more worries about orders not being delivered because you can see whether the order is shipped or not.

Here is an example of a central purchase order tracker in ProcureDesk:

User-Friendly Interface

Though it is not a feature, a user-friendly purchase order system would help drive adoption and increase purchasing compliance.

So, in addition to other features, you should evaluate the ease of use. This can be done through a quick demo or trial.

If you’re looking for a purchase order system to help you cut back on costs and streamline your purchase order process, you might want to explore ProcureDesk. We have a team of experts who can walk you through how it works. Click here to see it in action

Integration With The Accounting System

An integrated system allows you to automatically sync the purchase order and invoice date with your accounting system.

Let’s say you use QuickBooks Online or Enterprise as your accounting system.

After creating purchase orders and Invoices in your cloud-based system, you need to sync the data with the accounting system to book the cost to the correct chart of accounts.

Without an integration interface with the accounting system, you have to enter the data in your accounting system manually.

How it helps:

• No more manual data entry into your accounting system. That not only saves time but also eliminates any data entry errors.
• With a purchase order system, the purchase orders are automatically created and synced with your accounting system. So there is no need to have a dedicated resource for data entry into your accounting system.

Related: Purchase Order (PO) System For QuickBooks

Granular Access Control

As your company grows, you need better permissions and access controls. This allows you to control individual users or user group access.

For example, You only want certain users to see all purchase orders in the company.

How it helps:

• Granular access controls can help you meet segregation of duties and other compliance requirements, such as SOX (Sarbanes-Oxley).
• You can control the information flow and decide who can do what in the system.
• You don’t have to open up your purchasing system to all users. For example, you can control that only a few employees can issue purchase orders and commit the spend to the supplier.

Here is an example of what the granular access control looks like in ProcureDesk:

Procurement system benefits for Small Businesses

So why should you invest in a purchase order system? Here are some of the reasons:

Reduce The Average Cost To Process A Purchase Order

A paper-based purchase order is prone to human error, and it is slow. 

The cost of processing a purchase order (PO) can vary widely depending on industry and complexity. For instance, research by the Center for Advanced Procurement Strategy (CAPS) shows that the average cost per PO in manufacturing is $59, while it rises to $741 in the petroleum industry. These differences stem from the complexity of workflows and the number of stakeholders involved in approvals. To calculate your average PO cost:
Cost per PO = Total Yearly Cost ÷ Number of Purchase Orders Issued

For example, if a single employee with a loaded annual cost of $75,000 processes 60 POs per month (720 per year), the average cost per PO is $104. By adopting an automated purchase order system, you can reduce this cost by 40–50%, significantly improving efficiency and ROI.

Better Relationship With Your Supplier

A side benefit of automating the purchasing process is an improved relationship with suppliers. You get a digital purchase order process that helps with:

• Reduced errors mean suppliers spend less time correcting and processing the purchase orders.
• It provides better visibility to the supplier. Since the process is automated, suppliers know how long it takes to process orders.
• It avoids duplicate purchase orders so that you are not spending time creating returns for products you don’t need.

Visibility Into Spend At A Granular Level

Manual purchase order processes often limit visibility into company spending and impact decision-making related to capital allocation. Most businesses rely on basic reports, such as spend by supplier or general ledger (GL) accounts, which don’t offer detailed insights.

An automated purchase order system provides line-item-level visibility, allowing you to:

• Plan budgets more effectively.
• Identify cost trends and discrepancies.
• Negotiate better deals with suppliers by analyzing spend data.

For instance, businesses often discover they pay different prices for the same product across departments. Centralized data from automated systems helps uncover and resolve such inefficiencies.

For more on cost savings, download our free guide on implementing a strategic cost reduction program.

Fraud Prevention

You can ensure that the orders are authorized as per your purchasing policy by implementing automated approval workflows.

Most purchase order systems maintain an audit trail, and you can review the purchase approval history at any time.

With automation, you can build approval workflows so that employees don’t need to evaluate who should be approving the purchase. The purchase system automatically does that for you and helps in preventing procurement fraud.

Legal Safeguards

While negotiated contracts are ideal, they aren’t always feasible. In such cases, purchase order terms act as a substitute by:

• Including key commercial terms (e.g., payment terms, schedules, product warranties).
• Adding legal clauses (e.g., limitations of liability, indemnification).

These terms can help resolve disputes and serve as a general framework for agreements, even in legal proceedings.

Invoicing Efficiency

With the purchase order system, you can gain efficiencies in purchase approvals and productivity improvements and ultimately reduce the time spent processing purchase orders.

However, that is just one side of the equation.

Once the vendor delivers the order, the vendor sends an invoice for the products they have provided or the services rendered.

If you stop with a purchase order process, you leave a lot of efficiencies on the table.

Customers who have implemented an AP automation solution along with a purchase order system see the following benefits.

Matching Purchase Order And Invoice

Once you have the purchase order number, you can automatically match the supplier invoice with the purchase order.

With an integrated purchasing and invoicing system, the accounts payable (AP) team doesn’t have to spend time matching the purchase orders with the invoices.

The system can automatically match the purchase order and invoices, mark the invoices for payment, or route the invoice for exception approval.

Approval workflow / Exception routing engine

The automated matching process might result in one of the two scenarios:

Perfect match:

A perfect match is when the invoice document matches the quantity and price on the invoice, and there is a receipt for that order.

Exception:

That is an exception scenario when an invoice doesn’t match the purchase order or the receipt.

For example, the unit price on the order is $10, and the vendor invoiced you for $13 per unit.

An integrated purchasing and invoicing system can automatically route the document for approval to the concerned parties if there is an issue. This reduces the invoice processing time.

7 Steps To Create A Purchase Order System For Your Business

Creating a purchase order (PO) system for your business can streamline the procurement process and ensure efficient management of purchases. Here are seven steps to help you establish a purchase order system:

• Define Your Requirements: Identify the specific needs and requirements of your business. Consider factors such as the types of goods or services you regularly purchase, budget constraints, approvals, and any legal or regulatory requirements.
• Select a Purchase Order Software or System: Choose a purchase order software or system that suits your business needs. Look for features such as user-friendly interface, customizable fields, integration with accounting software, reporting capabilities, and scalability.
• Set Up Purchase Order Templates: Design purchase order templates that include essential information such as vendor details, item descriptions, quantities, prices, terms, delivery dates, and any special instructions or terms and conditions. Ensure consistency across all purchase orders.
• Establish Approval Workflows: Define approval workflows to ensure proper authorization of purchase orders. Determine who needs to approve purchase requests based on factors such as the dollar amount, department, or project. Automate the approvals wherever possible to expedite approvals and reduce delays.
• Integrate with Accounting Systems: Integrate your purchase order system with your accounting software to streamline the procurement-to-pay process. This integration facilitates seamless recording of purchase transactions, tracking of expenses, and generation of financial reports.
• Train Employees: Provide training to employees involved in the purchase order process. Ensure they understand how to use the purchase order system effectively, including how to create purchase orders, submit requests, track orders, and adhere to company policies and procedures.
• Monitor and Evaluate Performance: Regularly monitor the performance of your purchase order system to identify areas for improvement. Track key metrics such as order cycle time, approval turnaround time, accuracy of orders, vendor performance, and compliance with procurement policies. Use feedback from users and stakeholders to make adjustments and enhancements as needed.

By following these steps, you can establish a robust purchase order system that improves efficiency, accuracy, and control over the procurement process, ultimately contributing to the overall success of your business.

FAQs on Purchase Order Systems

What is the difference between a purchase requisition and a purchase order?

A purchase requisition is an internal document used to request approval for a purchase within an organization. It outlines the items or services needed and requires authorization from management or finance teams before proceeding.

A purchase order (PO), on the other hand, is an official document sent to a vendor after the requisition is approved. It formalizes the purchase agreement, specifying details like quantities, prices, delivery terms, and payment conditions.

In short, a purchase requisition initiates the procurement process, while a purchase order finalizes it with the supplier.

What Is The Main Purpose Of A Purchase Order?

The main purpose of a purchase order (PO) is to formalize and document the intent to purchase goods or services from a supplier.

It serves as a legally binding contract between the buyer and the supplier, outlining the specific details of the transaction, including item descriptions, quantities, prices, delivery dates, terms, and conditions.

Purchase Order vs. Invoice

While both purchase orders and invoices are essential documents in the procurement process, they serve different purposes and stages of the transaction:

• Purchase Order (PO): A purchase order is issued by the buyer to initiate a purchase from a supplier. It outlines the details of the order, including item descriptions, quantities, prices, delivery dates, and terms.
• Invoice: An invoice is a request for payment issued by the supplier to the buyer after goods or services have been delivered. It is a billing statement detailing the products or services provided, their respective prices, applicable taxes or fees, and the total amount due.

How Does A Supplier Use The Purchase Order?

A supplier uses a purchase order (PO) as a formal request from a buyer to supply goods or services.

Upon receiving a purchase order, the supplier verifies the details, including item descriptions, quantities, prices, delivery dates, and any special instructions.

The supplier then acknowledges the PO, indicating acceptance of the terms and conditions outlined.

Once the goods or services are delivered, the supplier generates an invoice based on the information provided in the purchase order, which serves as a request for payment from the buyer.

Why Can’t You Create POs Manually?

Manual processes increase the risk of data entry mistakes, discrepancies, and delays in order processing.

Additionally, manual PO creation lacks centralized tracking and visibility, making it challenging to monitor orders, manage approvals, and track spending effectively.

Do Online Stores Need PO Systems?

Yes, online stores can benefit from implementing purchase order (PO) systems, especially as they grow and scale their operations.

While online retail transactions often involve immediate payment at the point of purchase, businesses still need to manage procurement activities for sourcing inventory, supplies, or services.

A purchase order system enables online stores to streamline the purchasing process, track orders from suppliers, manage inventory levels and maintain accurate financial records.

Who Creates A Purchase Order?

Considering that you have evaluated your situation and decided that a purchase order process makes sense. The obvious question is, who should create purchase orders?

There are two options:

• Employees create purchase order requests:  In this case, an employee can create a purchase order request, and send it for approval. After it is approved, the purchase order system should automatically dispatch the purchase order to the vendor. A vendor might require a purchase order to be emailed or sent via EDI or other electronic methods. A good purchasing system should be able to support these different methods.
• Buyers/Procurement team creates orders:  This scenario is recommended when the purchasing team reviews the purchase requisition request before the order is sent to the vendor. In this case, the employees can create a purchase requisition This process gives you more flexibility on what can or can’t be ordered. This also lets the procurement team review the orders, seek vendor quotes, and get better pricing if possible.

How customizable templates enhance the PO process

Customizable templates streamline the purchase order (PO) process by allowing businesses to tailor POs to their unique needs. This includes adding fields for specific details like project codes, delivery instructions, or compliance requirements. By standardizing formats while maintaining flexibility, customizable templates improve accuracy, ensure consistency, and save time, making it easier to meet organizational and vendor expectations.