Regardless of the industry, all companies face the challenge of controlling corporate expenses. As the company gets bigger, the need to have a well-organized flow for internal purchases comes to a higher significance. And while you might think this area of your company is too chaotic to be under tight control, that’s a simple issue to clean up.
Top companies worldwide successfully manage hundreds to thousands of corporate purchases a month with purchase requisitions. If you don’t implement this widely accepted approach, it’s high time to start.
Not sure what is a purchase requisition and why you should adopt this practice? We’ve got the answers to all your questions in this blog.
What is a purchase requisition?
A purchase requisition is a standardized form filled by company employees every time they want to buy something from the corporate budget. In other words, it’s the documented explanation of the requested purchase, which should be approved by company management. If the purchase requisition does not get a confirmation from the procurement department, the purchase is cancelled. Having a purchase request form helps to ensure all corporate purchases are legitimate and worth spending budget on.
What goes into the purchase requisition form?
It’s hard to pinpoint a universal purchase requisition structure. It can vary from company to company, depending on the finance department’s internal corporate policies and workstyle. However, the key point here is that the more information the company management has about the purchase, the higher are the chances it will get an approve.
Below, we list the main sections that purchase requisition forms usually have. You can get inspired by it to create one for your organization.
- The name of the employee who requests the purchase
- The department of the requester
- Amount of items they want to acquire (exact)
- A detailed description of those items
- The reason for purchasing the items, the benefits they can bring to the company
- Legal name(s) of the potential supplier(s) to acquire items from
- The total price of the purchase
See below the purchase requisition form of Tenessee’s Municipal Technical Advisory Service for a better insight.
How does the purchase requisition submission work?
Besides different document structures, companies also differ in how they review the forms. In some organizations, employees are free to make corporate purchases up to a certain amount without management’s approval. Only once the total price of the requested purchase hits a number determined by the company beforehand should it pass a procurement department’s control.
If there is no free range for purchases, the purchase approval process usually works as follows.
Step 1: Filling in the purchase requisition form
Once an employee determines which goods they want to purchase, it’s time to fill up the form. The purchase requisition template is either provided to all the employees from the beginning or provided by the procurement department when needed.
There is also a difference between manual and automated purchase requisition documents. This document is available online in more advanced companies, and employees fill in the information digitally. Either way, the first step is filling in the form with all the necessary data about the upcoming purchase.
Further, employees submit the document to the manager of the department.
Step 2: Internal approval process
Before the form reaches the procurement and finance department, it passes the line manager’s approval of the requestor’s department. The latter is responsible for the first round of verification of the purchase’s legitimacy.
Besides, department managers verify whether the requested purchase does not exceed the department’s budget for the period.
The second round of internal approval passes through the inventory department. They check whether the company does not already have the required items in stock. If the form gets verification at this stage, the form goes to the purchasing department.
Step 3: Scanning of the purchasing department
Usually, that’s the last stage of the purchase requisition approval process. Here, the purchase either gets the verification or gets rejection.
Usually, the highest body can make a final decision; procurement manager. They are responsible for carefully scanning the form and assessing the requested purchase against the company’s budget, current needs, etc.
The purchase request can receive rejection if the procurement department does not find the purchase legitimate or appropriate for the company at the moment.
In case of rejecting the purchase requisition, the procurement manager sends the form back with the detailed reasons for rejection. This helps requestors better prepare future orders.
In case there is no reason to reject the form, but there are issues with the form’s details, the procurement manager can either fill in the missing information or send the form back with the form change requests.
Purchase requisition vs. Purchase order
There is a big confusion over purchase requisition and purchase order. Those two documents sound the same for amateur communities. However, they are entirely different.
A purchase order is opened once the purchase requisition is approved. It’s a written buyer’s request to supply the specified amount of goods at the selected dates.
Once suppliers fulfill the order and the company verifies the quality of the purchased goods, suppliers send an invoice to the buying company. The company pays the invoice, and the deal successfully completes.
To sum up
Purchase requisition might be considered an additional bureaucracy and hassle. However, it’s an essential tool in financial management. It makes the budget spending process transparent and allows managers to control employees’ purchases. In exchange for additional time and administrative tasks, implementing a purchase requisition system will ensure the business’s rational spending strategy.
