It is common for businesses to procure goods and services from other companies. If you manufacture or sell a product for sale, you could be selling paper, office supplies, or something else entirely. As time passes, more items are added to your collection, so keeping track of them becomes increasingly challenging. Especially when you don’t have a inventory forecasting software. Use a buying order approval process to keep track of all your purchases. Our discussion will cover why approval of purchase orders is beneficial for your business and how Inventooly can help with that.
What does approval of a purchase order mean?
In formal contracts, a purchase order specifies the terms and conditions by which a buyer and seller will purchase goods or services. Terms may be negotiated by the seller. If you observce in amazon stranded inventory you will see POs are legally binding contracts once they have been accepted by both parties.
In order for your company to place orders, stakeholders must validate and approve each order. An approval process for the order will likely be overseen by the department that stands to benefit most from the purchase. In any case, it depends on how large the business is, what it offers, and how the company is organized. Most new businesses seldom process purchase orders at all, choosing instead to purchase directly with credit cards. When your company grows, you will need to incorporate PO approval processes into your workflow in order to stay organized and improve visibility into your finance processes.
What is the need for your business to have a purchase order approval process?
- Reduced costs and controlled spending.
Monitor your financial processes actively to gain a better understanding of them. By doing so, you can reduce unnecessary spending and ensure that you are spending money on the right things.
- Improved efficiency of operations
By streamlining the approval process, employee frustration is reduced and approval times are shortened. It can be a lengthy and tedious process to approve purchase orders without the proper process.
- Increased collaboration between departments.
In order to navigate financial activities, many departments work together during an approval process. Sharing accountability ensures everyone understands what needs to be done and is on the same page.
- Take advantage of valuable insights.
All your company’s purchase orders can be approved through a single process. By analyzing financial activity, business owners can avoid costly mistakes in the future and make more informed decisions.
- Errors caused by humans are reduced
In the purchasing process, automatic approval of purchase orders helps reduce the chance of human error. The manual processes of approving purchase orders can lead to a multitude of errors. When these processes are automated, results are more accurate. Automation makes fewer mistakes than overworked humans, it is a simple fact.
- Selects the best vendors for your business
What are the most common suppliers you do business with? How many of them deliver on time? How many of them fail to deliver on time? You’ll find out when you use a purchase order approval process. An approval process for purchase orders also has the benefit of generating reports. Send more business to your best vendors and less business to those who overcharge or disappoint. Use your purchase order system to identify your best vendors and send them more business.
- Ensures control of purchases
You don’t really know what your company is purchasing without a purchase order approval process. Your expenses and inventory can spiral out of control if people or departments order things you don’t want them to. Every purchase becomes scrutinized when every approval has to be obtained. As a result, you’ll order fewer items you don’t need and keep better track of what you do need. The items you receive will also be better tracked that way, so you’ll get what you ordered and won’t have to hold inventory overstock.
- Ensures enhanced security
You can control who can order what in your company by implementing an automated purchase order approval process. Digital access control is available in most systems and lets you set who is allowed to approve purchases. You can also set who can view or edit the data. A two-factor authentication feature can be added for additional security and to ensure that employees do not make unauthorized purchases.
Process for Approval of Purchase Orders
You should assign specific roles to employees in the purchasing process to ensure an effective purchase order approval process. To order specific items, you need to determine who can request them and who is responsible for approving those requests. Size of the order may determine which person is assigned to each task.
You can design an approval process unique to your organization by setting the request and approval levels. There are two ways to get approval of purchase orders: manually by walking or emailing the POs around. And another is automatically by using software, such as Inventooly, which allows approvals to be automated. The automated systems are, of course, more efficient, and they provide fewer errors as well.
Step 1. Prepare the request
An employee or department places a purchase order when it needs specific goods or services. The employee then creates a purchase requisition detailing the items to be purchased through this process. Details include the vendor, the price, the delivery address, the date, and the length of time it should take for the items to arrive.
Step 2. Approve the Request
Purchase orders are now sent to the person assigned to approve POs by the original employee. An employee’s manager or someone more senior may be responsible. Following approval of the request, the process moves on.
Step 3. Generate the purchase orde
Purchase orders now have unique numbers with which to track approved purchase requests. They are then sent to their assigned vendors.
Step 4. Keep a record of vendor responses
Vendors typically notify you as soon as they receive your purchase order and let you know when you can expect to receive the goods. When the vendor accepts your PO, both parties are bound to the terms of that agreement.
Step 5. Collect your goods
The shipment finally arrives after a long wait. Your employee confirms receipt of shipment by checking the packing slip. Your employee may contact the vendor if something is missing, damaged in shipment, or not as ordered. As a rule, goods are shipped to the department or employee who ordered them.
Step 6. Check and approve the invoice
The process doesn’t end when you receive your order. Your company now receives an invoice from the vendor, which is then sent to your purchasing department or accounts payables. A three-way matching procedure has now been implemented. Three documents are needed to ensure three-way matching: the vendor’s invoice, the packing slip, and any other receiving information.
Let Inventooly Automate Your Purchase Order Approval Process
Inventooly is the solution for automating the approval process for purchase orders. You can streamline your entire purchase order and invoicing processes with Inventooly’s inventory management software, and manage your inventory more efficiently. It also offers various other services which you can check here.