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Purchase Order Approval Process: A Step by Step Guide

The purchase order (PO) approval process is a critical component of procurement management, often overlooked at the peril of the organization. Failing to take this process seriously can lead to unauthorized spending, compliance issues, and strained supplier relationships. Imagine a scenario where a significant purchase is made without proper approval, leading to budget overruns or receiving goods that are unnecessary.

Such missteps can be costly, both financially and operationally. Ensuring a robust and streamlined PO approval process is essential for maintaining control over procurement activities and safeguarding organizational resources.

What is the purchase order approval process?

Purchase order approval process is a systematic procedure that ensures all purchase orders are reviewed and authorized by designated personnel before being sent to suppliers. It typically involves multiple steps, including the creation of a PO, review by relevant stakeholders, approval by authorized personnel, and final issuance to the supplier.

Steps involved in the purchase order approval process:

  • Purchase Requisition: An employee or department requests to purchase goods or services, outlining the need, specifications, and budget.
  • PO Creation: The purchasing team or responsible individual creates a purchase order (PO), detailing the supplier, products/services, quantities, prices, and delivery terms.
  • Approval Workflow: The PO is routed for approval, which may involve multiple stakeholders based on the organization’s hierarchy or budget thresholds (e.g., department heads, finance, or senior management).
  • Review and Verification: Approvers review the PO for accuracy, ensuring that it aligns with the initial requisition and budget, and verify that terms are favorable.
  • Approval/Rejection: The PO is either approved or rejected. If rejected, it may be revised or canceled.
  • Purchase Order Issuance: Once approved, the PO is sent to the supplier, who confirms the order.
  • Order Fulfillment: The supplier delivers the goods/services as per the PO agreement.
  • Invoice Matching: Upon receipt, the invoice is matched against the PO and delivery receipt to ensure accuracy before payment is made.
  • Payment: After verification, payment is processed.

How do I approve a purchase order?

Purchase order approval involves reviewing and authorizing POs before they are sent to suppliers. Approvals follow a predefined workflow, often automated in procurement systems, based on criteria like purchase amount, department, or item type. Approvers verify PO details for accuracy, budget compliance, and alignment with procurement policies. Once approved, the PO moves forward for dispatch to the supplier.

To approve a purchase order, follow these steps:

  • Access the PO in the System: Log into your procurement or ERP system and navigate to the pending PO.
  • Review PO Details: Check the PO information, including supplier name, item descriptions, quantities, prices, delivery dates, and terms. Confirm these align with the initial request or contract.
  • Validate Budget and Compliance: Ensure the PO is within the allocated budget and complies with procurement policies or contractual agreements.
  • Approve or Escalate: If everything is correct, click "Approve" to authorize the PO. If issues are found, you can "Reject" or "Escalate" it for further review or clarification.
  • Notify Stakeholders: After approval, the system typically notifies the procurement team or dispatches the PO to the supplier directly.

Benefits of automating your PO approval process

  • Increased Efficiency: Automation eliminates the need for manual approvals, reducing the time it takes to process a PO. This speeds up procurement cycles and ensures that goods and services are received promptly.
  • Enhanced Accuracy: Digital purchase order software reduce the risk of human error in the approval process. The system can auto check for compliance with policies and budgets, these systems help prevent costly mistakes.
  • Improved Compliance: Automation ensures that all orders go through the required approval steps, enforcing compliance with organizational policies and regulatory requirements. This reduces the risk of unauthorized spending and ensures that all purchases are properly documented.
  • Real-Time Tracking: Automated PO systems provide real-time tracking of orders, allowing stakeholders to monitor the status of approvals and identify bottlenecks. This transparency helps in managing procurement activities more effectively.
  • Cost Savings: By streamlining the approval process, automation reduces administrative overhead and frees up staff to focus on more strategic tasks. This can lead to significant cost savings over time.

Take control of PO with Purchase Order Approval Software

Streamlining the purchase order approval process is essential for maintaining control over procurement activities and ensuring that organizational resources are used efficiently. Purchase order approval systems helps organizations to increase efficiency, improve accuracy, and enhance compliance, all while reducing costs. Whether you're just starting or looking to optimize an existing system, focusing on the PO approval process is a critical step toward effective procurement management. Embracing automation and clear procedural guidelines can help your organization avoid costly mistakes and ensure that every purchase aligns with strategic goals and budgetary limits.