Purchase Order Systems - Everything You Need to Know
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Purchase orders (PO) are legal documents that are drawn to finalize contracts between a buyer and a supplier. Purchase orders function as a security blanket as it enforces a legal binding on both the buyer as well as the supplier to adhere to certain terms and conditions while conducting a business transaction. Hence a PO is at the forefront of a Purchase Order System.
So what does a PO system involve and how does it benefit businesses? Read on to find out.
About Purchase Order Systems
Simply put, a purchase order system refers to the basic process followed by companies to manage their purchase orders and procurement of goods and services for their business.
Executed as a manual paper-based process by many companies, changing times and advanced technological capabilities have opened avenues for digitizing purchase order processes.
Modern PO systems are digital software programs designed to create, process, and track purchase orders along with supporting documents in a controlled manner. As a business grows and purchases rise, a reliable PO system can simplify processes, remove redundancy, and improve efficiency in any business.
Are Purchase Ordering Systems Necessary for Small Businesses?
Often, small businesses ignore the need for purchase orders. This is either because they involve too much paperwork or the purchasing capacity is not high or complex enough to stress on the need for a purchase order system.
As small businesses develop and purchasing transactions increase, documenting and tracking purchase orders become vital to ensure smooth workflows and to avoid pitfalls or detect fraud.
Larger companies may need the complete setup in a PO system to manage the procurement process. Multiple purchasing transactions involving a large number of employees necessitates complete monitoring and tracking of the entire process.
Smaller organizations may not need an end-to-end purchase ordering system. Still, a simple PO system can help small businesses create purchase requisitions, manage purchase orders, and track invoices as well as avoid bottlenecks and prevent fraudulent activities.
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Benefits of Purchase Order Systems
PO systems can bring a whole lot of advantages to any organization. Besides the ease of setting up, here are a few reasons why companies can benefit from using a purchasing order system.
- No duplicate or repetitive purchases
Irrespective of an organization’s size, manual procurement processes can result in duplicate or multiple orders for the same item. These errors can burden the company with increased expenses, and waste of employee time and effort. An organized purchase order system can help streamline purchase orders by means of cross verification and control checks that can prevent duplicate orders.
- Legal protection
Purchase orders are legal documents that serve as binding agreements between buyers and sellers. Purchasing order systems maintain proof of purchases that can be used in case of disputes and also act as references for contract pricing in case of price fluctuations.
Purchase order systems act as a centralized repository for all purchase orders and associated documents. This improves document management and in the process business efficiency. Since all purchase orders are checked and verified, waiting time is reduced, approvals become easier resulting in faster processing of purchase orders.
- Elimination of errors
A purchase order system designed with appropriate controls in place can result in an error-free process. Purchase ordering systems can provide greater accuracy, remove redundancy, and eliminate manual errors easily.
- Easy record maintenance
Purchasing order systems are a one-stop reference to view all purchase orders across all departments. Every PO is tracked and associated with relevant paperwork and hence every purchase transaction is simplified as a complete record with less paperwork. Less paperwork also means all your procurement records are safe from loss or damage and can be accessed at any time.
- Improved spending/ budget planning
Purchase order systems facilitate easy tracking and access of records that can help in planning spending or budgeting of a company. Management can assess procurement needs by analyzing the past and current purchase trends and allocate adequate budgets to improve spending. This can help organizations plan their business needs accurately with adequate focus on procurement and stock management for better efficiency.
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Using Automated Purchase Order Systems
Automated purchase ordering systems can work as an effective solution to do away with the hassles of manual purchase order processing that are both error prone and time consuming.
Digital PO system software solutions are flexibly designed to suit any type of organization and keep workflows smooth and efficient. Well-designed purchase order systems can offer top accuracy, better controls, speed up the procurement processes, and make vendor management easy and effortless.
Optimizing procurement processes through automation can pay off immensely if the right solution is chosen. The following steps can be used to choose and implement the appropriate purchasing order system for maximized benefits.
- Decide the purchasing policy - An organization has to clearly establish its purchasing policy to get the best benefits from using an automated PO system software. Once major aspects such as the main objectives, vendor setup, authority levels & permissions, invoice norms are all decided, transition to an automated PO system becomes easier.
- Selecting a suitable software - Purchasing needs vary. Hence companies should select an automated solution that can be customized to fit their purchasing needs. If the software is cloud-based, then ensuring that there is adequate customer service backup can ensure smooth functioning for first-time users. Some of the features should include:
- Create own purchase forms, requisitions or choose from templates
- Setup vendor information
- Assign permissions for different stages such as data input, review, or approvals
- Perform invoice matching before routing for approvals
- Generate data reports for analysis and decision-making
3. Implementing the PO system software - Any business adopting a new PO system software should make a gradual transition with a small team to avoid glitches and to create an understanding of how the software works.
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Purchase order systems can streamline and bring order to the procurement process in any type of organization. Automated solutions can help overcome the limitations of manual purchase orders. With the ability to provide increased transparency, control, and big savings on time and effort, automated PO systems can be considered as the need of the hour.