Posted in Financial Process Automation, Workflows

The Definitive Guide to Purchase Order Process Automation

A purchase order is one of the necessary types of paperwork that many business owners dread. The purchase order process is often long and complex and requires large amounts of back and forth communication. Too often, information gets lost in this type of unorganized communication – and even when it doesn’t get lost, it’s difficult to keep track of everything in an organized fashion.

But this bureaucratic pain is no longer necessary thanks to the advent of purchase order process automation.

A Look Into the Purchase Order Process

The purchase order process is the entire journey of a purchase order. It’s part of every organization’s overall procurement process. It includes its creation, the approval of the order, dispatch, delivery, invoicing, closure, budget checks, contract management, quality checks, and anything else that is required for an order to be fulfilled.

For this process to be clear for all parties involved – the sales rep, managers, and buyers – establishing a proper flow is key.

Here is what one possible purchase order process flow could look like (yours will vary depending on your business requirements):

In this example, the process conditionally requires the approval of a VP if the amount exceeds a certain threshold.

What Are Purchase Order Processes Used For?

The main goal of a purchase order process is to manage orders and expectations surrounding this order. When a clear process is established, all parties involved understand what will happen at what step of the flow.

This helps to clear up misunderstandings and errors in communication.

However, their use goes way beyond fixing communication. A proper purchase order process also helps you track your paperwork, which will, in turn, make it easier to keep your budget in check.

For instance, imagine how your finance department would react if they received an invoice for several hundred thousand dollars due within 30 days. Without a properly organized purchase order process, the finance department won’t always be warned – this makes it needlessly difficult for them to do their job.

Read more: How automating a single process can save you $50,000 per year.

Having a proper paper trail is also vital when you’re audited. Your purchase order process can provide evidence of a transaction in the case of a financial audit, thus protecting you when it comes to the legal aspect of your finances. If you don’t have a proper process and tend to usually note down orders on a piece of paper, this isn’t proof enough for auditors.

What is a Purchase Order Form?

Every purchase order process starts with a form that’s filled in with information about the PO and is then routed around according to business requirements.

The purchase order form becomes a legally binding document once it is accepted and signed by the vendor. This document outlines everything the customer and the vendor need to know about an order.

Purchase order forms are the single point of reference in the case of a dispute or an issue in clarity. In 2014, a federal court ruled that purchase orders are an enforceable contract between two parties in the case of MidAtlantic International Inc. vs. AGC Flat Glass North America Inc. If your process requires the supplier to accept the PO, it serves as a legally binding document and can be used to address any discrepancies.

What Should a Purchase Order Include?

Your purchase order must contain everything necessary to clarify the purchasing process. This includes the items in the order, price, delivery expectations, payment terms, and so on.

A typical purchase order form might look like this:

Basic Purchase Order form.
A basic Purchase Order Form – click the image to try the form now.

Types of Purchase Order Forms

  • Standard: This is your typical PO that’s used to make one-off orders for products or services. They’re usually made when a specific need arises within your company.
  • Planned: For planned POs, everything is specified except for the delivery date. This type of PO is usually made when you can anticipate a particular need. For businesses that need to upkeep office supplies, for instance, this is a great way to make an agreement with a supplier for future deliveries.
  • Blanket: Similar to planned POs, blanket POs don’t have a specific date OR amount of the product or service. This is used to agree on terms and conditions as well as budgeting limits, but the specifics are figured out only later. Blanket POs are useful to guarantee better pricing from a supplier, since you’re establishing a need over a long period of time.
  • Contract: Contract POs are the loosest type – they act as a formal agreement between the supplier and the client, but don’t establish specifics for products or services. These are used to establish legally binding terms and conditions to create a future flow when a client knows they want to work with a certain supplier.

Try now: Check out these free purchase order form and process templates.

Pitfalls of a Manual Purchase Order Process

Using a manual system, e.g. emailing an Excel spreadsheet around or even a paper form to process your purchase orders, leads to several challenges down the road.

Lack of Visibility

Without an automated system, it’s difficult for all parties involved in a purchase to get visibility to all necessary documentation at once. You also can’t tell where you are in your process unless someone happens to tell you.

Lots of Paperwork Generated

Running a business already involves too much paperwork. While some of it is unavoidable, you should aim to reduce paper where possible. A manual purchase order process just adds to the pile of paperwork and makes it increasingly difficult to stay organized.

Dependent on Human Intervention

For the process to move along, only humans can act – this requires the employee making the initial PO to send an email or walk up to their manager for a signature, then remember to follow-up with the vendor. So many details can go wrong – for instance, if the manager is traveling or the email is sent to the wrong person, the process is unnecessarily delayed.

Process Bottlenecks

The smallest details can cause a bottleneck when you’re using a manual PO process. What if you run out of printed PO forms? What if your manager misplaces the form they were supposed to sign?

This may sound kind of ridiculous, but these things do happen and waste valuable time!

Compliance Issues

You need to comply with business or regulatory requirements, but manual processing makes this difficult. You can’t track the exact process for every order, so how do you know if the process is being followed to the letter every time?

Prone to Errors and Inaccuracies

Human error is unavoidable. This isn’t because people are unreliable – it’s just a part of human nature.

Even the best employee can have an off day and make a mistake. When this happens, you shouldn’t default to blaming your employees – instead, take a good look at your process. Errors are bound to happen over time.

Financial Process Automation: 2 minute explainer video

What is Purchase Order Automation?

Now that you understand all the challenges of a manual purchase order process, let’s see how purchase order automation helps overcome them.

Purchase order automation is the process of using electronic purchase requisition and purchase order forms and routing to streamline the entire process.

Instead of relying on a human-driven manual process, you rely on a solid system that automates every step.

Why Automated Purchase Order Forms Are Necessary

In short, purchase order automation helps you solve all of the pitfalls you’ll encounter in a manual process.

You’ll have better inventory and payment tracking, since the process doesn’t rely on a manual paper trail.

Such a system also allows you to store essential information securely. Most automated processes store information in a secure database or cloud storage and can be accessed from anywhere. No more sifting through the paper cabinet to find that missing PO!

Plus, you can save up to 65% of your operating expenses – mostly because such a process requires fewer resources from all parties involved and allows you to control your budget more accurately.

Automated purchase order processes are the best way to streamline communication and reduce unnecessary and unending email threads. All parties have visibility over the entire process via online dashboards.

Because of this, human error is reduced to a minimum, since every step of the process is moved forward through automation. A good system will also prevent input errors when the initial PO is filled in by your employee.

Lastly, an automated system provides you with legal protection during audits. You can easily pull up any PO to give full visibility of every step of the purchase order process to a financial auditor. This means there are no nebulous steps that might raise suspicions.

Essentially, automated purchase order processes are essential to running your business like a well-oiled machine.

Read more: Automate accounting processes for a productive finance department.

A Step-by-Step Guide to Creating an Efficient and Automated Purchase Order Process

With all this in mind, how do you set up an efficient process for your purchase order forms? Here is a step-by-step process for establishing a proper workflow.

Step 1: Purchase Order Creation

When an employee within your organization needs to create a new purchase order, your system should allow them to create this PO online.

The automated PO form should include vital fields that the employee can fill in.  Where possible, fields such as employee name or today’s date should be auto-populated.

Conditional purchase order process
Conditional PO process: click the image to try this process now.

In the above example, you can see that all the necessary fields already exist and several are automatically filled in. When the employee inputs information, validation ensures that all required fields are filled in and the data in each field is valid.

This helps eliminate data input errors and helps the employee create the PO much faster than if they needed to input everything manually.

Step 2: Send to Manager for Budget Approval

Once the employee has completed the purchase order from, an automated process should send it to their manager within the system itself. This means no more sending Word documents via email and hoping for the best.

Let’s take a closer look at the previous example:

purchase order approval from manger

In this frevvo sample, you can see there is a ‘Send to Manager’ button available to the employee. With one click of that button, the PO is sent to the right person – and that’s all there is to it. The system automatically figures out who the right manager is, and routes to that individual.

Step 3: Manager Verifies Request

The system automatically notifies the manager once a PO request for approval is pending.

From there, the automated process allows the manager to approve, deny, or send back the form for correction. We all know how busy managers can get so the system includes a mechanism to remind them or even escalate to someone else if the PO is not approved in a timely manner.

Manager approval of purchase order

This systems also allow digital signatures – this avoids unnecessary printing and scanning of documents. Everything is handled from the same online app.

Everything also works seamlessly on mobile devices; a manager who is traveling can process the PO from anywhere.

As you can see above, approval takes a single click, just like the original PO creation.

A good process also enables the manager to make comments – without this functionality, managers may decide to send comments by email, which makes it difficult to track all the information that was exchanged about the PO.

Step 4: Add a Step for High-Budget Orders

Your internal business practices may require additional approval for orders over a specific amount. The max amount can vary depending on your organization. For instance, in the sample shown in the previous screenshots, any PO exceeding 10k is automatically forwarded to the VP for approval.

conditional purchse order approval.

When such a step is added, the final approval should include all necessary information. When the PO arrives in the VP’s inbox, they can see all relevant information including employee details, order line items, manager approval, and any comments.

Step 5: Notify Employee Upon Approval

When all parties have approved the PO, an efficient system automatically notifies the employee who originally created the form.

At the same time, the process automatically moves to the next step.

Step 6: Send to Vendor

The vendor receives an approved copy of the PO with all the needed signatures. From there, the vendor can sign the PO and prepare an invoice. This signature requires no printing since it is electronic. It ensures acceptance by the vendor and creates a legal binding contract.

signature on purchase ordr

Step 7: Notify the Finance Department

Finally, an efficient automated sales order process sends a notification to your finance department.

This allows the department to prepare for the incoming invoice. It also lets them know of all the terms and conditions involved in the transaction.

Wrapping it Up

Automating your purchase order forms allows you to get rid of all the extra steps of the process that are needlessly weighing you down, whether it’s printing, data entry, tracking down lost POs, or sifting through endless email threads.

All of that paperwork can be automated for increased profits, reduced errors, and an overall higher ROI for the entire process.

Automate Purchase Order with frevvo

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