PR and PO might be the terms you frequently encounter if you’re ever applying to managerial staff for some corporate purchase. Both documents make corporate expenses transparent and under tight control.
As purchase requisition and purchase order work together, many think those two forms are the same. However, these documents are different in structure and purpose. bPR and PO are various parts of the corporate expenses approval chain.
This blog post will clear up confusion and help figure out the key difference in purchase requisition vs. purchase order.
What is a purchase requisition?
A Purchase Requisition is an initial request for buying goods or services from a corporate budget. Company members can create in numerous ways, but most commonly, they generate it through an electronic system such as e-procurement or ERP. The requisition contains all relevant information about the good or service a requester wants to purchase, including:
- Purchase account code
- The category of the items to buy
- Description (details of product)
- Quantity of items, etc.
The initiator of the purchase requisition is the person who needs to buy something on behalf of their company. As company staff can’t make purchase decisions themselves, they need to submit their purchase request to the upper management. That’s why purchase requisition comes into use. It contains all the details about the future purchase and goes through an organization’s purchasing department for review and approval.
Read more about purchase requisition in our in-depth overview.
Well, what is a purchase order, then?
After the purchase requisition gets approval, it turns into a Purchase Order (PO).
A purchase order is an official document indicating orders goods or services from a supplier. The PO confirms the request details as specified in the Purchase Requisition. It ensures that all parties are on the same page with what’s the order and how much it costs. In other words – PO is a great option for communication between a buyer and seller about the number of goods or services. It authorizes the purchase and creates a binding contract between the supplier and the buyer. After the final step, the arrival of goods or services happens, the PR gets its final confirmation.
So, what’s the key difference in purchase requisition vs. purchaser order?
- The Purchase Requisition allows to place an order with a supplier, and Purchase Order is used to confirm this order.
- One needs approval by the supervisor or department head for a PR, while Purchase Order doesn’t need it.
- One can change PR before sending a Purchase Order (and after as well), but it is impossible to alter Purchase Orders without changing the original Purchase Requisition.
Can a company implement PRs without PO or vice versa?
It’s hard to answer this question precisely as a company can use those documents separately and together.
However, implementing Purchase requisitions without Purchase orders could result in delays when ordering goods and services, as the purchasing department would need to contact suppliers for quotations.
Similarly, using Purchase Orders without Purchase requisitions may lead to lower control over what is being spent regularly.
It is up to each company to decide which system works best for them. However, we highly recommend you to use both in your corporate procedures, as this makes the corporate expenses management process more efficient and transparent.
How does the whole process work?
The whole process of opening a purchase requisition and turning it into a purchase order is called Purchase Order Management (POM) system. It is creating a Purchase Order (PO) and Purchase Requisition (PR), processing, approving, and fulfilling Purchase Orders. The POM system includes all processes from planning order to receiving it.
In its essence, Purchase Order Management consists of five main stages:
- The purchase Requisition stage is when an employee requests goods or services from a Purchase Requisition.
- The next one is the purchase Order phase comes into play when the Purchase Requisition is approved, and Purchase Order is created.
- There is also a purchase Receipt stage, which takes place once the supplier and quality check have received the goods has been completed.
- The payment Process happens after all invoices are received, payment is agreed, and Purchase Order is closed.
- Last but not least, the purchase Reporting stage is when the purchase requisitioner submits purchase orders, records purchase receipts, reviews purchase reports, and performs audits of past purchases.
In general, the POM system includes all processes from planning order to receiving it.
What should a company working with PR/PO avoid?
There are a few Purchase Order Management best practices that companies should follow to ensure they are not making any mistakes.
It is important to agree on the exact budget when approving the future purchase. To do this, a requester should submit a well-detailed PR, where a manager can identify the number of requested items and the total sum company should spend on them. Among all, this will help avoid overspending.
Referring to a right person
Purchase order approval workflow should be straightforward and efficient. As a first step, each responsible person should have automatical assignments of PR/PO they should check. It’s better if the approval process has two stages. The first approval phase is for the department’s manager, who has more in-depth information on the department’s budget and priorities. Further, the request can route to the financial department.
Eliminating paper Purchase Orders
Using paper Purchase Order formats is still common in many companies, but it takes a lot of time to process them. A company can transform the whole Purchase Order Management system by using Purchase Requisition software to create PRs online and approve them electronically. This eases the overall tracking process and increases accuracy.
Perhaps, there is no answer to who wins in the purchase requisition vs. purchase order battle. It’s better to say that there should be no comparison, as those two forms are essential for smooth control over corporate expenses.