In this purchase requisition vs. purchase order face-off, we compare the key differences between these documents. We will start with the purpose of these documents and then compare the scope, who creates these documents, and who approves the requisition vs. purchase orders. In the end, we will cover some best practices for implementing a purchase requisition and purchase order process using a manual and fully automated approach which can ultimately help you in your company’s financial audits.

Purchase Requisition vs. Purchase Order: Key differences

	Purchase requisition	Purchase order
What is it?	It is a request from an employee to purchase a product or service.	It is a formal document from the buyer to the supplier to purchase a product or service.
Purpose	Get internal approvals to make the purchase	Legal binding document between a buyer and supplier based on the pre-determined terms.
Process steps	Generally, a simple process of 2-3 steps	The shorter process if a buyer is processing a purchase order.
Benefits	Easy to use	Provides cash flow visibility.
Who creates it?	The person who needs the product or service.	Generally, a procurement buyer or the accounting team creates the purchase order.
Who approves it?	Manager or department head	Procurement Director or CFO
Internal vs. External	Internal document	External document
Numbering system	Generally a sequential number.	Sequential number with some intelligence built into the number

Purchase Requisition vs. Purchase Order: Definition

What Is A Purchase Requisition?

A purchase requisition (PR) is a document or form used by an organization’s employees or your accounts payable team to request the purchase of goods or services. A purchase requisition aims to initiate the procurement process and obtain approval for the requested purchase.

A purchase requisition typically includes details such as the type of item or service needed, the quantity required, the estimated cost, and the delivery date. It may also include information such as the supplier or vendor, the department or project requesting the purchase, and other relevant details.

A purchase requisition is typically submitted using an electronic purchase requisition system or a manual purchase requisition form during the purchase process.

A purchase requisition needs approval from the management before the item is purchased.

What Is A Purchase Order?

A purchase order (PO) is a legally binding document a buyer creates to request goods or services from a supplier or vendor.

A purchase order form outlines the purchase details, including the quantity, description, price, and delivery date of the requested goods or services.

A purchase order is typically issued after a purchase requisition has been approved and serves as a confirmation of the purchase details. Once a purchase order is issued, the supplier or vendor can use it as authorization to fulfill the order.

A purchase order used by your procurement department provides important information to both the buyer and supplier or vendor.

1. The description and quantity of the goods or services being ordered.
2. The agreed-upon price for the goods or services.
3. The delivery date and the ship-to location.
4. The payment terms and method of payment. For example, Net 30 days from the date of the invoice.
5. Any other relevant terms and conditions of the sale. For example, special legal or commercial terms are negotiated between two parties.

As a business owner, you must remember that a purchase order may require further approval before the buyer issues a purchase order to the supplier.

It comes down to the purchasing policy followed by your accounting department, which defines your internal controls for purchase.

Purchase Requisition vs. Purchase Order: Purpose

What Is The Purpose Of A Purchase Requisition?

The primary purpose of a purchase requisition is to initiate the procurement process and obtain approval for the requested purchase.

Employees who need goods or services create a purchase requisition and submit it to the appropriate personnel for review and approval. The review and approval process helps to ensure that the requested purchase aligns with the organization’s procurement policies, budget, and objectives.

On the other hand, a purchase order (PO) is to provide a legally binding document confirming the details of the purchase between a buyer and a supplier or vendor.

A purchase order outlines the specific details of the purchase for a supplier. The minimum required details are price, description of what is being purchased, the quantity, and where it needs to be delivered.

Companies Implement A Purchase Requisition For The Following Reasons:

1. Control Spending: When a company is looking to control expenses, it implements a purchase requisition process to review and approve the purchase before the purchase is made. This allows managers to review the justification of the purchase and determine if the purchase is required.
2. Real-time budget tracking: A common need for companies is to ensure that employee purchases are within the assigned budgets. Purchase requisition allows managers to proactively monitor the budgets so they don’t exceed the budget.
3. Reduce cost: Companies looking to reduce cost implement this process so that a buyer can review the purchase and determine the best price. A purchase requisition process allows a buyer to review the incoming request and get quotes from different vendors.

What Is The Purpose Of A Purchase Order?

Companies implement a purchase order process for the following reasons:

1. Required by suppliers: Many vendors require a formal purchase order before shipping the product or performing a service for a customer. Many vendors have online web forms that you can use to place orders. Without such a process, a buyer must issue a purchase order to the supplier.
2. Tracking commitments: A purchase order is a binding contract or a paper trail that allows a company’s finance team to track the open commitments. In the absence of a purchase order, there is no way for a company to track what is being purchased, and they are often frustrated with surprise invoices showing up without any advance notice. The finance team can quickly check the total purchase orders at any given time through a purchase order process.
3. Open order tracking: Without a purchase order process, companies cannot know how much amount is already paid to the vendor and what is still pending to be paid. An open order report can give you a quick synopsis and an audit trail of what is ordered and what is still pending to be invoiced.

Purchase Requisition vs. Purchase Order: Process Steps

Process Steps For Purchase Requisition

Here is a step-by-step process for creating a purchase requisition:

Step 1: Need Identification: In this step, your internal departments determine what goods or services are required, including quantity, quality, and specifications. The need is driven by customer demand or regular purchases required to run a business, for example, office supplies.

Step 2: Check the budget: This is an optional step by many companies, but we recommend a budget check to verify that the purchase is within the budget allocated for the department or project. This can be done by consulting with the finance department or budget manager. You don’t need to do supplies like office or kitchen supplies.

Step 3: Choose a supplier: In this step, the employee selects an existing supplier that can provide the required goods or obtain quotes or proposals and evaluate them based on predetermined criteria.

Step 4: Create a requisition: In this step, the employee uses the procurement system or software to create a new purchase requisition. This can typically be done by logging into the system, selecting the appropriate department or project, and filling out the required fields.

Step 5: Enter details: In this step, the employee fills in the required details in the purchase requisition form, including the supplier name, item description, quantity, price, and delivery date. Encourage employees to be specific and detailed to ensure the supplier understands the requirements. Add any necessary attachments: If required, attach any supporting documentation to the purchase requisition, such as a quote from the supplier, product specifications, or drawings.

Step 6: Submit for approval: Review the purchase requisition to ensure all information is accurate and complete. Then, submit it for approval to the appropriate department or manager based on your organization’s hierarchy. This may involve obtaining signatures or approval through an online purchase approval workflow system.

Step 7: Track status: Monitor the status of the purchase requisition through the procurement system, and follow up with any necessary parties to ensure timely processing. This may involve checking the system periodically or receiving notifications when the status changes.

Process Steps For Purchase Orders

Here is a step-by-step process for purchase orders:

Step 1: Convert purchase order from requisition: A purchase order can be created from an approved purchase requisition, or you can create a purchase order from scratch.

Step 2: Review the supplier’s terms: In this step, the buyer checks the terms and conditions for purchase. This may include payment terms, delivery times, warranties, and return policies. Make sure you understand and agree to these terms before proceeding.

Step 3: Attach any necessary documentation: Attach supporting terms and documents that will help clarify any ambiguities and ensure that the supplier can provide the requested goods or services.

Step 4: Submit for approval: This additional step may or may not be required. For example, some companies require a Finance manager’s approval before sending the purchase order to the vendor.

Step 5:Send the purchase order: Once approved, send it to the supplier. This can typically be done electronically through the procurement system or by email or fax.

Step 6: Track the order: Monitor the purchase order status to ensure that the supplier delivers the goods or services on time and in accordance with the order. This may involve checking the procurement system or contacting the supplier directly.

Step 7: Confirm receipt: Once the goods or services are received, the appropriate department will confirm the delivery and process the payment to the supplier. This may involve matching the purchase order to the receipt and invoice to confirm that the product has been delivered and the invoice is correct.

Purchase Requisition vs. Purchase Order: Benefits

Benefits Of Purchase Requisition

The top benefits of using a purchase requisition process are as follows:

1. Accountability and oversight: A purchase requisition process provides control and accountability over the purchasing process by requiring employees to obtain approval before making purchases. This helps to ensure that purchases are authorized, budgeted, and aligned with organizational goals. Organizations can easily track expenditures and prevent unauthorized purchases by having a clear record of who approved the purchase.
2. Efficient purchasing process: A purchase requisition process can help streamline the purchasing process by automating approvals, reducing errors and delays, and providing greater visibility into purchasing activity. This reduces the purchase requisition cost and the time it takes to create purchase requisitions.
3. Compliance and Risk Mitigation: A purchase requisition process can help organizations to comply with legal and regulatory requirements, as well as internal policies and procedures.

For example, if you are a non for profit organization, then you need this compliance and should be able to report on it to auditors.

The purchase requisition process also allows you to check if a contract is required to be established for purchase before the purchase is made. Companies often don’t have contacts for services, which could lead to liability issues.

Benefits Of Purchase Orders

Here are the key benefits of a purchase order process:

Efficient purchase processing: A purchase order process streamlines the purchasing process by providing standard templates for generating purchase orders and communicating with the vendors. If the process is well communicated, it takes the ambiguity away.

Better communication with suppliers: With a purchase order process, there is no miscommunication with the vendor about what is being purchased. Specifically, a purchase order process allows you to define the purchase requirements and the delivery timelines clearly. All this leads to lesser back and forth with the vendor and enables better relationships and communication with the suppliers.

Compliance and legal protection: A purchase order is a legal document that outlines the details of a transaction between a buyer and a supplier. A purchase order can help protect both parties in case of a dispute or misunderstanding by providing a written record of the agreed-upon terms and conditions. In case of any issues, the purchase order can be used as evidence to resolve the dispute.

Purchase Requisition vs. Purchase Order: Who creates it?

Who Creates A Purchase Requisition?

A purchase requisition is typically created by an employee identifying a need for a particular product or service. This need can arise for various reasons, such as replacing an old or broken item, upgrading equipment, or stocking up on inventory.

Sometimes, a purchase requisition is created by an appointed person responsible for purchasing for the entire department.

Creating a purchase request can be as simple as using an online e-procurement system or filling up a purchase request form. The employee is responsible for getting it approved by the appropriate department manager or other stakeholders as defined in your purchasing policy.

Who Creates A Purchase Order?

An organization’s purchasing department or procurement team typically creates a purchase order. The purchasing department manages the procurement process, including sourcing suppliers, negotiating contracts, and issuing purchase orders.

A buyer typically converts a purchase requisition into a purchase order. If a purchase requisition is unavailable, a buyer creates the purchase order from scratch and submits it for further approval.

 

Purchase Requisition vs. Purchase Order: What Approves It?

Who Approves A Purchase Requisition?

An immediate purchasing manager or a department head approves a purchase requisition. Who should approve a purchase requisition is defined in the purchasing policy for the company.

It is recommended to have at least one approval for the purchase request. Still, many companies have a self-approval process where employees don’t need approval up to a certain purchase amount.

On the contrary, certain nonprofit organizations have a hard requirement of having at least 2 approvals, no matter the amount.

Irrespective of the number of approvals, the purchase approval policy should be communicated to the employees regularly so that everyone is aware of the approval limits and who should approve the purchase.

You can also use a purchasing system to automate the approval process. A purchasing system automates the approval process so employees don’t have to remember who needs to approve a purchase.

Who Approves A Purchase Order?

Generally speaking, a purchase order doesn’t need approval if the purchase order is created from the purchase requisition.

If the purchase requisition is already approved and the final amount on the purchase orders is less than the purchase requisition, no further approvals are required.

In our experience, 99% of our customers don’t ask for PO approval if the requisition amount is less than or equal to the purchase order amount.

A noted exception is nonprofit organizations where the Finance Director must approve a PO before making the purchase order is sent to the vendor.

Purchase Requisition vs. Purchase Order: Document-type

Purchase requisition and purchase order serve different purposes.

Is Purchase Requisition An Internal Document?

The purchase requisition is to get approval before purchasing the product or service. A purchase request can then be converted into a purchase order, or you can make the purchase.

The purchase requisition is not a key document sent to a vendor or other trading partners.

For example – Suppose an employee wants to purchase supplies for a party from Walmart. That employee will use the purchase request process to get approval based on the approximate amount for the purchase.

The employee can then walk to a nearby Walmart store, purchase, and pay using a credit card.

No further action is required.

On the other hand, suppose the IT manager wants to purchase Laptops for new hires. The IT manager will put in a purchase request. However, the vendor needs a purchase order before shipping the product. In this case, an external document (PO) must be generated.

Is The Purchase Order An External Document?

A purchase order, on the other hand, is an external document.

A purchase order is always sent to the vendor so that the vendor can ship the product. Most large companies require a purchase order before shipping the requested product or performing the requested service.

A purchase order can be emailed to the vendor, or one can use EDI (Electronic Data Interchange) standards to send the purchase order to the vendor.

EDI is preferred because it is a system-to-system communication with minimal chance for errors or someone not checking their email for a while.

Purchase Requisition vs. Purchase Order: Numbering system

Purchase Requisition Numbering System

A purchase requisition is an internal document, so it can have any number you desire.

Most companies use a sequential numbering system, or each department might have its sequence.

Until it is unique, I don’t think it matters what numbering system you choose.

Purchase Order Numbering System

On the other hand, a purchase order number is used by the vendors when they send the invoice.

You can find your purchase order number on the top right-hand side of the invoice document.

We recommend that a purchase order number is either sequential or based on a date format. For example, YYYY-MM-DD-XXX, where XXX is a sequential number that is automatically generated by a system or your manual purchasing process.

Frequently Asked Questions

Do the purchase requisitions come before the purchase order?

Yes, purchase requisitions typically come before purchase orders in the procurement process. A purchase requisition is a document or request submitted by an employee or department within an organization to notify the purchasing department of the need for a particular product or service. In cases where a purchase order is not required, an employee can complete the purchase after getting approval.

What is an example of a purchase requisition?

An example of a purchase requisition would be a request from an employee or department within an organization to purchase office supplies. The purchase requisition might include the desired quantity, product specifications, and budget.

A purchase requisition can be entered using a purchase requisition system or a manual form.

Here is an example of what a purchase requisition might look like with a manual form:

Purchase Requisition Form

Justification for Purchase:

[Insert a brief explanation of why the purchase is needed]

Date: [Insert date]

Department: [Insert department name]

Requested by: [Insert employee name]

Item Description: [Insert description of the item to be purchased]

Quantity: [Insert desired quantity]

Budget: [Insert budget amount]

Date Required: [Insert the date by which the product or service is needed]

Notes for the buyer:

[Insert any additional information or special requirements]

Does a requisition become a purchase order?

No, a purchase requisition does not become a purchase order. A purchase order is a separate document that could be generated from an approved purchase requisition.

A purchase requisition is a request made by an employee or department within an organization to purchase goods or services. The purchase requisition aims to initiate the procurement process by providing details about the requested item, including specifications, quantity, budget, and other relevant information.

For example, Mike in IT wants to purchase a new laptop; he will create the request and submit it for approval.

After the request is approved, a purchasing buyer will generate the purchase order from the request data and send the purchase order to the vendor.

A procurement system like ProcureDesk automatically generates a purchase order from a purchase request.

What is a purchase requisition form?

A purchase requisition form is a document used by employees or departments within a company to request the purchase of goods or services. This form provides the details about the item or service requested, including the quantity, specifications, budget, and any other relevant information needed to start the procurement process.

The form usually includes several fields that need to be filled out. These fields typically include information about the person making the request, a description of the item, the budget available for the purchase, a justification, and the date by which the item is needed.

A purchase requisition form is a valuable tool that helps companies manage their purchasing process efficiently and effectively. It provides a structured approach to requesting and approving purchases and helps prevent unnecessary or unauthorized purchases.

What are some best practices for creating and managing purchase requisitions?

Here are some best practices for creating and managing purchase requisitions:

1. Standardize the process: Create a standard process for submitting, reviewing, and approving purchase requisitions. This ensures that all requests are handled consistently, and everyone involved knows what to expect.
2. Clearly define roles and responsibilities: Make sure everyone involved in the procurement process understands their roles and responsibilities. This ensures that purchases are made in a timely and efficient manner.
3. Provide training and support: Train employees on how to submit purchase requisitions properly and offer support to answer any questions. This will help reduce errors and ensure that requests are complete and accurate.
4. Use a purchasing system: Use a centralized purchasing system to manage purchase requisitions. This ensures that all requests are tracked and managed in one place and that nothing falls through the cracks.
5. Set up approval policy: Establish clear guidelines for approving purchase requisitions, such as the dollar value of requests requiring senior management’s approval. This ensures that the appropriate person checks for budgets before approving the purchase.
6. Monitor the process: Regularly monitor the purchase requisition process to ensure it functions smoothly and efficiently. This will help identify any issues or bottlenecks and allow for adjustments to be made as necessary.

What are some best practices for creating and managing purchase orders?

Here are some best practices for managing purchase orders.

1. Standardize the process: Standardize the template and process for generating purchase orders. This ensures that all buyers are following the same process.
2. Use a centralized purchasing system: Use a procurement/purchasing system to manage purchase orders. This eliminates the need for manual Purchase order generation and saves time and effort for purchasing team.
3. Provide accurate and complete information: Ensure that purchase orders include accurate and complete information, including the item or service being ordered, the quantity, the delivery date, the cost, and other relevant details. This will help prevent errors and delays in the procurement process.
4. Monitor the process: Regularly monitor the purchase order process to ensure it functions smoothly and efficiently. This will help identify any issues or bottlenecks and allow for adjustments to be made as necessary.
5. Track and reconcile orders: Track purchase orders to ensure they are delivered and invoiced correctly. This will help prevent overbilling or double payments.

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