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Step-By-Step Guide to Purchase Order Process in 2025
Take control of your company's spending with our detailed guide to the purchase order process.
A well-structured purchase order (PO) process does more than just manage buying - it strengthens financial control, boosts efficiency, and reduces risk. Organizations that optimize their PO workflows can reduce procurement costs by 30% and shorten purchase cycles by 60%.
When done right, a PO process can:
- Improve transparency and control across departments by standardizing how purchases are requested, approved, and tracked.
- Prevent maverick spending by ensuring every purchase is approved and aligned with budget guidelines.
- Enable long-term cost savings through better save costs through supplier relationships and contract compliance.
Despite its advantages, many companies still rely on manual, disconnected PO systems. This often leads to delays, hidden costs, and errors. For instance, APQC reports that manually processing a single PO can cost up to $150 - a number that quickly scales in larger organizations.
In this blog, we will explore:
- What Is the Purchase Order Process?
- Why Is the Purchase Order Process Important?
- Steps in the Purchase Order Process
- Best Practices for Streamlining the Purchase Order Process
- Common Challenges in the Purchase Order Process
- Pain Points of the Manual Purchase Order Process
- Automating the Purchase Order Workflow
- Frequently Asked Questions on the Purchase Order Process
What is the purchase order process?
The purchase order process is a very important step in procuring goods and services, which involves creating, approving, and sending an official document called a purchase order (PO) to a supplier. This document outlines the details of the purchase, serving as a legally binding contract between the buyer and the seller.
Impact of not having a proper purchase order process in place:
- Financial losses due to unauthorized or unnecessary purchases
- Delays in receiving critical goods or services, hampering operations
- Difficulty in tracking and managing procurement expenses
Importance of Purchase Order Process
The purchase order process is essential for maintaining control over procurement activities and ensuring the smooth functioning of an organization.
Here’s why you need a purchase order process:
Strategic Sourcing: A well-managed purchase order process allows you to consolidate your procurement needs and leverage your procurement power. When you have a bird’s eye view on the past purchase orders and frequently procured items, you can negotiate better terms, discounts, and contracts with suppliers, leading to significant cost savings over time.
Avoid Risks and ensure compliance: A well-structured purchase order helps mitigate various risks associated with the procurement process. By carefully selecting and vetting suppliers, you can minimize the risk of supply chain disruptions and ensure the quality of goods and services received.
Improved Cash Flow Management: An efficient purchase order process allows you to better manage your cash flow. If you can track purchase orders and their expected implementation dates, you can plan your payments accordingly, avoiding cash flow shortages or excessive deployment costs. Moreover, by negotiating favorable payment terms with suppliers, you can optimize your working capital and improve your overall financial health.
Steps in the Purchase Order Process
The purchase order process typically involves several key steps: identifying the need for a particular service or solution, creating a requisition, obtaining approvals, generating a purchase order, sending the PO to the supplier, receiving and inspecting the ordered items, and processing payment.
A well-structured purchase order process ensures that all purchases are properly authorized, documented, and tracked, minimizing the risk of errors, fraud, or delays.
1. Purchase Requisition:
The purchase order process begins with a purchase requisition, which is an internal document that outlines the need for a specific product or service. An employee or department initiates this request, providing details such as the item description, quantity, estimated cost, and required delivery date. The requisition serves as the foundation for the entire PO process, ensuring that all necessary information is captured from the start.
2. Requisition Approval:
Once the purchase requisition is submitted, it goes through an approval process. The requisition is reviewed by the appropriate manager or budget holder, who assesses the necessity, verifies the budget availability, and ensures alignment with organizational goals. This step is crucial for maintaining financial control and preventing unauthorized or unnecessary purchases. Approvals can be routed based on predefined hierarchies, thresholds, or departmental requirements.
3. Vendor Selection:
After the requisition is approved, the next step is to identify potential suppliers who can fulfill the requested goods or services. This process may involve sending out requests for quotations (RFQs) to multiple vendors, evaluating their responses based on factors such as price, quality, delivery time, and reputation. The goal is to select the most suitable vendor that offers the best value for the organization.
4. Purchase Order Creation:
With the vendor selected, a formal purchase order is created. The PO is a legal document that outlines the specific details of the purchase, including the item descriptions, quantities, agreed prices, delivery dates, and any special terms and conditions. The PO serves as a contract between the buyer and the seller, clearly defining the expectations and obligations of both parties.
5. Purchase Order Approval:
Before the PO is sent to the vendor, it undergoes a final approval process. The PO is reviewed by the appropriate authority, such as the purchasing manager or finance department, to ensure accuracy, compliance with policies, and alignment with the approved requisition. This step acts as a final checkpoint to prevent errors or discrepancies and maintain the integrity of the purchasing process.
6. Order Placement:
Once the PO is approved, it is sent to the vendor, officially placing the order. The PO can be transmitted electronically or through traditional means, depending on the vendor's preferences and the organization's systems. The vendor acknowledges receipt of the PO and begins processing the order according to the specified requirements.
8. Invoice Processing:
Upon fulfilling the order, the vendor sends an invoice to the buying organization. The invoice is a request for payment and includes details such as the PO number, item descriptions, quantities, prices, and payment terms. The invoice is then matched against the corresponding PO and goods receipt, a process known as 3-way matching, to verify accuracy and prevent discrepancies. Any deviations are investigated and resolved before payment is authorized.
9. Payment:
After the invoice is approved and matched, payment is processed according to the agreed terms. This may involve issuing a check, initiating a bank transfer, or utilizing other payment methods as specified in the PO or contract. Timely and accurate payment is essential for maintaining good vendor relationships and ensuring a smooth flow of goods and services.
10. Record Keeping:
Throughout the purchase order process, all relevant documents, including requisitions, POs, invoices, and receipts, are stored and maintained for record-keeping purposes. These documents serve as an audit trail, allowing for easy tracking, reporting, and compliance with internal policies and external regulations. Proper record-keeping is crucial for financial transparency, dispute resolution, and future reference.
Common Challenges in the Purchase Order Process
Even with a defined workflow, many organizations face recurring challenges in managing their purchase order (PO) process. These issues can lead to delays, cost overruns, and compliance risks - especially when teams rely on manual systems or lack centralized visibility.
Here are some of the most common challenges companies encounter:
Lack of Standardized Workflow
Without a clearly defined and consistently followed PO process, teams often operate in silos. This leads to inconsistencies in how purchase requests are handled, increasing the risk of unauthorized or duplicate purchases. A standardized workflow ensures that every purchase goes through the correct channels with proper approvals.
Manual and Paper-Based Processes
Many companies still rely on spreadsheets, emails, or even physical paperwork to manage purchase orders. This slows down the entire cycle and introduces errors such as incorrect item details, missed approvals, or lost documentation. Manual processes also make it harder to track the status of orders in real time.
Poor Visibility into Spend
A major hurdle in the PO process is the lack of real-time insight into what’s being purchased, by whom, and for how much. Without centralized visibility, finance and procurement teams can’t track budgets accurately or identify trends in supplier performance and pricing.
Delays in Approval Cycles
Bottlenecks often occur during the approval stage - especially if the process is not automated or clearly defined. Managers may miss notifications or delay approvals, which can hold up critical purchases and impact project timelines or operations.
Disconnected Systems
When procurement, finance, and inventory management systems don’t talk to each other, it creates fragmented workflows. This disconnection makes it harder to match POs with invoices and receipts, increasing the chances of payment delays or errors.
Inaccurate or Incomplete Data
Missing or incorrect information on POs - like wrong quantities, prices, or supplier details - can result in order disputes, delivery issues, or overpayments. Poor data hygiene often stems from decentralized input or lack of validation checks in the system.
Overcoming these challenges requires not just policy enforcement, but also technology-enabled solutions that centralize and automate the entire PO lifecycle. Up next, we’ll explore the common pain points specifically tied to manual purchase order processes.
Best Practices for the Purchase Order Process
Implementing best practices in your purchase order process is crucial to avoid the costly consequences of an inefficient or poorly managed system. Here’s how you can stop playing catch-up with manual spreadsheets and finally take control over your purchase order process:
1. Standardize PO Templates:
Implementing standardized PO templates ensures consistency and completeness of information across all purchases. Pre-defined templates should include all necessary fields, such as item descriptions, quantities, prices, delivery dates, and terms and conditions, to provide a clear and comprehensive overview of the purchase.
2. Set Clear Approval Workflows:
Organizations should set clear approval hierarchies and thresholds based on factors such as purchase value, department, or risk level. Automated approval workflows can improve the process, route POs to the appropriate approvers based on predefined rules, and provide better visibility into the status of each PO. Clear approval workflows help prevent bottlenecks, ensure timely processing, and maintain compliance with organizational policies.
3. Enforce Contract Compliance:
Contract compliance helps prevent maverick spending, ensures consistent pricing, and maximizes the value derived from negotiated agreements. It’s better to establish mechanisms to track and enforce contract compliance, such as integrating contract information into the PO process, setting up alerts for contract expirations or renewals, and regularly auditing purchases against contracted terms.
4. Conduct Regular Audits:
Regular audits can uncover process weaknesses, procurement compliance issues, and areas where automation or process redesign can yield better business outcomes.
Pain Points of the Manual Purchase Order Process
Manual purchase order processes might seem manageable at a small scale, but as organizations grow, these outdated methods become major roadblocks. Without automation, teams are forced to rely on emails, spreadsheets, and paper trails - leading to slowdowns, errors, and poor visibility. Below are the biggest pain points that arise when POs are handled manually:
Time-Consuming and Inefficient
Creating and approving POs manually involves back-and-forth emails, phone calls, and document transfers. Every step - from request to approval - takes longer, reducing overall procurement speed and increasing the administrative burden on teams.
High Risk of Human Error
Manual data entry often leads to mistakes such as incorrect item quantities, pricing discrepancies, or using outdated purchase order discrepancies, or using outdated purchase order templates - resulting in confusion and costly errors. These errors can cause shipment delays, payment issues, and strained supplier relationships.
Lack of Real-Time Tracking
With manual systems, it’s difficult to track the status of a purchase order at any given time. This lack of visibility leads to confusion, missed deadlines, and duplicated efforts - especially when multiple teams are involved.
Lost or Misplaced Documents
When POs are processed through emails or printed files, they’re easily lost in inboxes or physical storage. Missing documents make it harder to verify purchases, match invoices, or respond to audits.
Delayed Approvals
Without automated alerts or a centralized approval system, PO approvals are frequently delayed. Managers may overlook requests buried in emails, resulting in slow order processing and potential disruptions to operations.
Difficult to Scale
As order volumes increase, managing POs manually becomes unsustainable. Procurement teams struggle to keep up, leading to inconsistent practices and reduced control over spending.
A manual purchase order process also creates gaps in the broader source to pay cycle, making it harder to align procurement activities with accounts payable, contract management, and vendor performance tracking. Switching to an automated PO process helps overcome these challenges by improving accuracy, speeding up approvals, and giving teams complete visibility into every transaction.
Reasons for Automating the Purchase Order Process
Now that you know how to manage your purchase order process effectively, it's time to consider taking it to the next level by automating the entire workflow.
Here’s why:
1. Saving Time with Automated Purchase Orders
Manual PO processes often involve time-consuming tasks such as data entry, paper-based approvals, and back-and-forth communication. Automation eliminates these manual efforts by digitizing the process, enabling electronic data capture, and automating workflows. This results in faster PO processing times, reduced cycle times, and improved overall efficiency.
2. Real-time visibility into each Purchase order
With an automated system, organizations can easily track the progress of POs, monitor approval stages, and identify any bottlenecks or delays. This enhanced visibility enables better decision-making, as managers can access up-to-date information on procurement activities, budget utilization, and vendor performance.
3. Ensuring Compliance and Reducing Risk
Automating the purchase order process strengthens financial control and ensures compliance with internal policies and external regulations. It can enforce predefined approval hierarchies, route POs based on configurable rules, and maintain a complete audit trail of all procurement activities. This helps prevent unauthorized or fraudulent purchases, ensures adherence to budget limits, and facilitates compliance with legal and regulatory requirements. It can also flag any deviations or discrepancies, enabling proactive risk management and reducing the likelihood of financial leakage.
How Spendflo can help you automate your purchase order process
Spendflo makes it easy to automate and streamline your PO process. When you digitize PO creation, approvals and system integration, you'll save time and reduce errors compared to handling things manually.
- Use Spendflo's PO creation tool which lets you input all the key details like item descriptions, quantities and prices. This helps ensure POs are accurate and complete.
- Set up approval workflows in Spendflo based on your company's approval policies. The system will automatically route POs to the right approvers and send notifications, taking care of follow-ups for you.
- Integrate Spendflo with your existing ERP and accounting software. This syncs data in real-time, cuts down on manual data entry work, and gives you a full picture of your purchasing activities in one place.
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Frequently Asked Questions on Purchase Order Process
1. What is the purpose of a purchase order in procurement?
A purchase order (PO) acts as a formal contract between a buyer and a supplier. It ensures that every purchase is documented, approved, and traceable. POs help control spending, avoid duplicate orders, and clarify expectations like pricing, quantity, and delivery timelines - making procurement more organized and compliant.
2. How does the purchase order approval process work?
The approval process typically begins after a purchase requisition is submitted. The request goes through designated approvers - often department heads or finance - who review the need, check budget availability, and authorize the purchase. Once approved, a formal PO is generated and sent to the vendor.
3. Why is automation important in the PO process?
Automation reduces errors, speeds up approvals, and ensures consistency across departments. It eliminates manual data entry, sends reminders to approvers, and matches POs with invoices and receipts automatically. This helps teams save time, gain better visibility, and avoid overspending.
4. What happens if there is no purchase order process in place?
Without a structured PO process, companies face risks like unauthorized spending, lost documentation, budget overruns, and delayed payments. It also becomes difficult to track purchases, manage vendor relationships, or maintain audit readiness. Over time, these gaps can result in financial losses and compliance issues.
5. How does the purchase order process support budget control and financial records?
The purchase order process helps enforce budget control by tracking spend against approved limits before purchases are made. Each PO includes a purchase order number, unit price, and cost center data, which feeds directly into financial records - ensuring every expense is documented and aligned with company budgets.
6. Can the purchase order process be integrated with ERP and procurement systems?
Yes, modern ERP and procurement systems can integrate the entire purchase order process - from requisition to invoice reconciliation. This ensures smoother workflows, real-time updates, and accurate data sharing across supplier portals, sourcing tools, and finance modules - making it easier to automate processes and reduce manual work.
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