Self Purchase Orders: Why They Are Bad for Your Business

For some companies, self purchase orders (POs) may seem like a convenient way to streamline procurement. But self POs—where employees can create and approve their own purchase orders without oversight—can lead to a host of issues that are detrimental to the business. 

Let’s dive deeper into why self POs are a risky practice and explore best practices for establishing controlled, efficient procurement processes.

Definition of Self Purchase Orders

A self purchase order is a procurement process that allows employees to independently create, approve, and send POs to suppliers without requiring approval from the procurement or finance departments. This means that employees can order goods and services at their own discretion, without any checks or balances in place. 

While this approach may seem to offer convenience and speed, it opens the door to numerous problems that can harm the company’s financial health, vendor relationships, and overall procurement efficiency.

Common Scenarios Leading to Self Purchase Orders

Self purchase orders often arise in organizations due to several factors:

Lack of clear procurement policies and procedures: Without well-defined guidelines on how purchasing should be conducted, employees may take matters into their own hands and create self POs.

Decentralized procurement processes: When procurement is decentralized across departments or locations, it can be challenging to enforce consistent practices, leading to the emergence of self POs

Inadequate procurement systems and tools: If the company lacks modern, user-friendly procurement tools, employees may find it easier to bypass the system and create manual self POs.

Insufficient training and communication around purchasing: Employees who are not properly trained on procurement policies and the importance of following them are more likely to resort to self POs.

Desire for faster, more convenient ordering by employees: In an effort to get what they need quickly, employees may create self POs without realizing the broader implications for the business

10 Reasons Why Self Purchase Orders Are Risky

Self purchase orders are risky because they lack proper oversight, leading to overspending, non-compliant purchases, and potential fraud. They also hinder the company's ability to negotiate better terms with suppliers and maintain accurate financial records.

Here are the top 10 reasons:

1. Lack of Control and Visibility:

When employees can initiate POs on their own, finance and procurement lose visibility and control over spending. There are no checks and balances to ensure purchases are necessary, compliant with policies, and competitively priced. This lack of oversight can lead to maverick spend, where employees purchase from non-approved suppliers or overspend on goods and services. It also makes it difficult to track and control overall spend, as POs are created ad hoc without centralized monitoring. This lack of control can quickly lead to budget overruns and financial strain for the company.

2. Increased Fraud Risk:

With self POs, it becomes much easier for fraudulent or inappropriate purchases to slip through the cracks. Employees may exploit the lack of oversight to buy items for personal use, engage in kickback schemes with vendors, or deliberately overpay for goods and services. Without proper approval workflows and segregation of duties, these fraudulent POs often go undetected until significant financial damage has been done. Self POs create an environment where fraud can thrive, putting the company’s assets and reputation at risk.

3. Inconsistent Vendor Management:

Self POs allow employees to choose their own suppliers, bypassing preferred vendor agreements negotiated by procurement. This leads to a proliferation of suppliers, inconsistent pricing and terms, and difficulty managing vendor relationships. When employees can purchase from any supplier they choose, the company loses the ability to consolidate spend and leverage volume discounts. It also becomes challenging to ensure that suppliers meet quality, delivery, and service standards, as there is no centralized vetting process. Inconsistent vendor management can lead to higher costs, supply chain disruptions, and quality issues

4. Reduced Negotiation Leverage:

When spend is fragmented across many suppliers due to self POs, the company loses the ability to leverage its full purchasing power. Negotiating discounts, rebates, and favorable contract terms relies on consolidating and controlling spend—which self POs undermine. By allowing employees to purchase from a wide range of suppliers, the company dilutes its bargaining power and misses out on significant savings opportunities. Strategic sourcing initiatives become ineffective when spend is scattered and uncontrolled.

5. Compliance and Audit Issues:

Self POs often lack the proper documentation and approvals needed to meet compliance requirements. This creates major headaches during audits, as unapproved POs may violate purchasing policies, accounting standards, or even regulations in some industries. Auditors may flag self POs as a significant internal control weakness, leading to failed audits and potential fines or legal consequences. Without proper approval trails and documentation, self POs expose the company to serious compliance risks.

6. Inefficient Processes:

Without standardized procurement workflows, self POs can lead to inefficient and duplicative processes. Employees may waste time figuring out how to create POs, researching suppliers, and chasing down approvals. This ad hoc approach slows down purchasing and drains productivity across the organization. It also leads to inconsistencies in how POs are created, approved, and processed, making it difficult to optimize the procure-to-pay cycle. Self POs create a chaotic purchasing environment that hinders efficiency and effectiveness.

7. Inconsistent Data and Reporting:

Self POs make it difficult to capture consistent, accurate purchasing data. POs may be created in different formats, with key information missing or entered incorrectly. This undermines spend visibility and analytics, making it tough to track KPIs, identify savings opportunities, and make informed decisions. Without reliable data, procurement cannot effectively manage categories, monitor supplier performance, or optimize spend. Self POs lead to a fragmented and incomplete view of procurement activity, hindering strategic decision-making.

8. Strained Supplier Relationships:

When any employee can send POs, suppliers may receive conflicting communications, inconsistent requirements, or unrealistic demands. This can damage supplier relationships and even lead to supply disruptions if suppliers become frustrated with the disorganized approach. Suppliers may also take advantage of the lack of centralized control to overcharge or underdeliver, knowing that there is no consistent oversight. Poor supplier relationships can lead to higher costs, reduced innovation, and supply chain risks for the company.

9. Missed Early Payment Discounts:

Many suppliers offer discounts for early invoice payment, which can add up to significant savings. However, self POs often lead to delays in invoice processing, as unapproved POs need to be investigated and reconciled before payment can be made. These delays cause the company to miss out on early pay discount savings, leaving money on the table. When POs are created outside of standard processes, it becomes difficult to capture and enforce early payment terms consistently.

10. Difficulty Enforcing Procurement Policies:

With self POs, it becomes nearly impossible to effectively enforce procurement policies around approved suppliers, spend categories, competitive bidding, contract terms, and more. 

Employees can easily circumvent these policies, leading to compliance gaps and suboptimal purchasing decisions. Policies designed to control costs, mitigate risks, and ensure fair competition are rendered ineffective when employees can create POs at will. This undermines the value of having procurement policies in the first place and exposes the company to unnecessary risks.

Examples of Problems Caused by Self Purchase Orders

To illustrate the real-world impact of self POs, consider these examples:

Example 1:

A manager approves their own PO for a $50,000 consulting project, bypassing procurement’s preferred suppliers and negotiated rates. The company ends up overpaying for the service by 25% compared to the rates available through the approved supplier. This extra cost cuts directly into the company’s bottom line and sets a bad precedent for maverick spend.

Impact: The company overpays for the consulting service, reducing profitability. It also sends a message that bypassing procurement policies is acceptable, encouraging further noncompliant spend.

Example 2:

An employee sends a PO to a new supplier without getting them properly vetted and approved. The supplier turns out to be unreliable, delivering low-quality parts that cause production delays and customer dissatisfaction. The company has to scramble to find a replacement supplier, incurring rush charges and overtime costs to get production back on track.

Impact: The company experiences supply chain disruptions, increased costs, and damage to its reputation with customers. The lack of proper supplier vetting exposes the company to unnecessary risks.

Example 3:

During an annual audit, several large POs are discovered that lack proper approval documentation. The POs were created by employees for capital equipment purchases, but there is no evidence of competitive bidding or budget approval. The company struggles to justify the purchases, leading to audit findings and potential fines for noncompliance with internal controls and accounting standards.

Impact: The company faces audit issues, potential financial penalties, and reputational damage. The lack of proper approval trails for the POs creates serious compliance risks

These examples highlight how self POs can lead to financial losses, operational disruptions, and compliance failures. The risks are simply too high to allow self POs to continue unchecked.

Implementing Effective Procurement Policies

To address the risks of self POs, companies need to implement clear, effective procurement policies and procedures. Key elements of an effective procurement policy include:

Formal Approval Workflows:

Establish standard workflows where POs must be approved by the appropriate level of management and/or procurement, based on factors like dollar amount and category. Use procure-to-pay systems to automate these workflows and ensure consistent adherence to approval policies. Clearly define roles and responsibilities for requesters, approvers, and procurement staff.

Approved Supplier Lists:

Develop a list of approved suppliers by category, and require employees to purchase from these suppliers. Negotiate favorable contracts with key suppliers, including pricing, service level agreements, and other terms. Regularly review and update the approved supplier list based on performance and business needs.

Catalog Buying:

Implement catalog buying, where employees can easily purchase approved items from a pre-set catalog. This ensures compliance while making purchasing convenient for employees. Catalog buying helps guide spend to preferred suppliers and enforces negotiated pricing and terms.

Training and Communication:

Continuously train employees on procurement policies and procedures. Communicate the importance of following these policies for the company’s financial health and operational efficiency. Provide clear guidance on how to purchase goods and services properly, and make sure employees understand the consequences of noncompliance.

How to Avoid Self Purchase Orders: Best Practices

Rather than allowing self purchase orders, best-in-class companies establish formal procure-to-pay workflows with proper controls. Here are some strategies to eliminate self POs and improve the purchasing process:

Implement Requisition and Approval Workflows:

All POs should go through standardized requisition and approval processess, with clear policies on spend authority. This ensures that appropriate approvals take place based on factors like spend amount, category, and business need. Automated procure-to-pay systems can streamline these workflows by enforcing business rules, routing requisitions for approval, and generating POs once approvals are complete. This eliminates the possibility of employees creating and approving their own POs.

Establish Approved Supplier Catalogs:

Guide employees to preferred suppliers through approved catalogs or “punchouts.” This makes it easy for employees to find and purchase what they need from vetted sources, while ensuring contract pricing and terms are applied. Supplier catalogs can be integrated with procure-to-pay systems for a seamless buying experience. By directing spend to approved suppliers, the company can maximize savings, reduce risk, and improve compliance.

Embrace Automation:

Automation is key to making controlled purchasing efficient and user-friendly. Procure-to-pay software streamlines the process with digital workflows, automatic PO generation, and integration with financial systems. Employees can easily create requisitions, while the system applies business rules and routes for approval. Automated three-way matching of POs, receipts, and invoices ensures accuracy and speeds up invoice processing. 

Monitor and Analyze Spend Data:

Regularly monitor spend data to identify any off-contract or noncompliant purchasing activity. Use spend analysis tools like Spendflo to track key metrics like spend by supplier, category, and business unit. Identify trends and patterns that may indicate policy violations or opportunities for consolidation. 

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The bottom line? The convenience of self POs simply isn’t worth the significant risks and costs to the business. Forward-thinking companies are eliminating self POs in favor of modern, automated procurement processes that strike the right balance between efficiency and control. By implementing best practices like standardized workflows, approved supplier catalogs, and spend monitoring, companies can achieve a procurement process that is fast, compliant, and strategic. It’s time to say goodbye to self POs and hello to a new era of procurement excellence.

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How can Spendflo help you avoid Self Purchase Orders?

Spendflo can help you avoid the risks and inefficiencies of self purchase orders by providing a comprehensive procure-to-pay solution. Our platform combines advanced automation, robust controls, and user-friendly interfaces to streamline your purchasing process while ensuring compliance.

Here's how Spendflo helps you eliminate self purchase orders:

• Automated Workflows: Our platform enforces standardized requisition and approval workflows, ensuring that all POs go through the proper channels. Customizable business rules and approval hierarchies prevent employees from creating and approving their own POs.
• Approved Supplier Catalogs: We make it easy for employees to find and purchase what they need from pre-approved suppliers. Our platform integrates with supplier catalogs, enabling guided buying that ensures compliance with procurement policies and negotiated contracts.
• Spend Visibility and Control: Spendflo provides real-time spend visibility and robust reporting capabilities. You can easily monitor purchasing activity, identify non-compliant spend, and take corrective action. Our platform helps you maintain control over your procurement process and drive strategic decisions.

Curious? Talk to us now!

Frequently Asked Questions on Self Purchase Orders

What are the three types of purchase orders? 

The three types of purchase orders are standard purchase orders (used for one-time purchases), blanket purchase orders (used for recurring purchases over a period of time), and contract purchase orders (used for purchases under a specific contract).

What is an NPO vs PO? 

A non-purchase order (NPO) is an invoice processed without a corresponding purchase order, while a purchase order (PO) is a document that authorizes a purchase and outlines the details of the goods or services to be purchased, including quantity, price, and delivery terms.

Can you invoice without a PO? 

Yes, you can invoice without a PO, but it is generally not recommended. Invoicing without a PO can lead to payment delays, disputes, and difficulty in tracking and reconciling purchases, as there is no prior authorization or agreement on the purchase details.

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