Purchase requisition vs. purchase order: understanding the differences

Whether you're part of a larger purchasing department or you're in charge of managing purchase orders for a growing organization, it's important to understand the difference between purchase requisitions vs. purchase orders. These two terms are often used interchangeably, but failing to grasp the differences between the two can carry financial and even legal consequences for the parties involved.

Here's a quick overview of the key differences and why it matters in your purchase process.

What is a purchase requisition?

In a newly formed company with only a handful of personnel, an employee might go directly to the CEO when they needed an item like a new desk chair. The CEO might have used her company credit card to buy a new one and furnished an expense report to the finance department after the fact. Some employees might even have been empowered to handle this process themselves.

Now that the company has grown to more than 100 employees, this informal procurement “system" is no longer tenable. This is when you'll likely begin using purchase requisitions. A purchase requisition:

• Is an internal document filled out by an employee asking that the company purchase an item or service (such as office supplies or technology ) on their behalf, typically using a requisition form
• Must be approved by key stakeholders, which may include the employee's department manager and members of company management
• Is generally only used to request goods and services that contribute to the daily operations of the workplace
• Contains information about the type of item or service needed, when and why it's needed, along with supplier information and an estimated cost
• Creates a paper trail of who is requesting and approving what items and services, which can help avoid fraud and ensure departments stay within budget and are prepared for financial audits

If approved, a purchase requisition can be turned into a purchase order on its own or consolidated with other requisitions in order to save on shipping costs and possibly negotiate better prices. It can also serve as a reference point for future purchases or in the case of a dispute with a vendor.

What is a purchase order?

Once a purchase requisition form is approved, a purchase order is the next step in the procurement process. A purchase order:

• Creates a legally binding agreement between your company and the outside vendor from whom you've committed to procuring a particular set of goods or services
• Contains all the details relevant to the proposed purchase, such as a purchase order number, vendor and purchaser contact information, shipping address, item SKU numbers, quantities, prices, delivery dates and purchase order status
• Serves as an audit trail that can help track cash flow and inventory as well as holding purchasing or procurement managers accountable for the quality of the goods they order

Purchase requisition vs purchase order: What's the difference?

A purchase requisition and purchase order are two distinct stages in the procurement process, and there are several differences between them. Most of these differences stem from the fact that a purchase requisition is designed for internal use within a company to express a desire to purchase goods. If a purchase requisition is withdrawn, lost or denied, employee morale and productivity may take a hit, but there are no legally enforceable consequences. A purchase order, however, becomes a legally binding document between your company's purchasing team and an outside vendor once that vendor accepts the order. There may be consequences if the supplier delivers an item that fails to meet expectations or the procurement team fails to pay within the agreed upon terms.

Here are some of the differences between the two types of documents, with the caveat that some details may vary based on an individual company’s policies.

Who is part of the purchasing process?

In most companies, any employee can fill out a purchase requisition and submit it to their supervisor or department head for approval. Your organization's procurement policies may be more stringent, such as requiring them to be approved by company management before being sent to a vendor, and only allowing certain personnel, such as a purchasing officer, to send them.

What do the timelines look like?

Purchase requisitions usually include a desired delivery date, but only on a purchase order is the delivery date considered a contractual obligation.

Flexibility and amendments

The process for amending or canceling a purchase requisition or purchase order – and whether it's possible to do so – is up to either your individual company or the terms of the purchase order agreement your company made with the vendor.

Addressing common questions about the purchase order and purchase requisition process

When seeking to understand more about purchase requisitions vs. purchase orders, some questions may arise. Here are a few common ones

Can a purchase requisition stand alone without a purchase order?

No one will receive any items or services unless an approved purchase requisition becomes a purchase order that is submitted to and accepted by a vendor.

What happens after the approval process?

Once a purchase requisition is approved, it becomes or is added to a purchase order, which, after approval by the appropriate parties, is sent to a vendor. If a vendor is able to supply what your company is asking for, they'll send a confirmation of the purchase order and begin taking steps to fulfill the request.

Can a purchase order be modified after issuance?

Every vendor has their own purchase order terms, so they may allow buyers to amend their order under specific circumstances or up to a certain point in the process. Doing so will likely require additional forms.

How does a purchase requisition or purchase order streamline procurement?

A purchase requisition and purchase order both eliminate confusion and a chain of emails among the purchasing department and others within the organization by providing a clear approval process. In addition, they create an audit trail that can prevent fraud and errors and serve as a reference for future orders in your purchasing system . If the customer service department loves their new computer monitors, when it's time to order monitors for the accounting department, all of the vendor and item information is already available within the previous purchase order.

What are the potential risks associated with mismanagement of purchase requisition and orders?

The effects of improperly managed purchase requisitions and orders can ripple through an entire company. These include:

Unmet needs

If the director of a nursing home submits a requisition to the corporate office for a new lift chair for the swimming pool, for example, and it's misplaced, residents miss out on valuable exercise time.

Overspending

Improperly handled purchase orders could result in order duplication or spending funds that have already been earmarked for something else.

Lack of recourse

Purchase orders provide legal grounds on which you can refuse to pay a vendor who isn't upholding the terms of your agreement – but only if you have the order in your possession and have handled the purchasing process properly.

Best practices for managing purchase requisitions and purchase orders

To make the most of your company's entire procurement process, it’s important to follow some best practices.

Implement clear processes for approving purchases

Have well-documented procedures for purchase requisitions and purchase orders, and make sure all employees are aware of them. Employees should know where to find a purchase request form, and it should ideally be digital. Your procurement department should also use a standard purchase order form and have a written purchase requisition workflow.

Use purchase order software that's integrated with other systems

When it comes to managing a new purchase requisition or purchase order, the right technology is crucial. Using purchase order software that integrates with your accounting software will ensure all the key documents are routed to the correct departments and create a more streamlined process for your finance team.

Accounting software for purchase orders and purchase requisitions

While purchase requisitions are typically internal documents, purchase orders are external, legally binding agreements. Understanding this, along with other nuances surrounding the two types of documents, is an important step toward optimizing your company's procurement process.

Even with the use of purchase requisitions and a clearly defined purchase order process, your procurement team can become bogged down in duplicate data entry and unproductive communication when you don't have the right technology on your side.

Gravity’s purchase order management software automates the approval process and maintains a record of all your purchases, vendor information and deliveries. Gravity also recently introduced a purchase requisition solution that stores information so repeat purchases from preferred vendors is a breeze.

Procuring the right supplies and equipment helps your company run at its best. And for a procurement process that runs at its best, there's Gravity.

Gravity Software

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