Purchase orders are one of many valuable tools in a company's accounts payable chest. They add a level of formality and order to what can otherwise be quite a messy system. Show
But just like most classic spending processes, the idea is usually better than the execution. Purchase orders should add clarity and visibility to business transactions. Instead, they tend to add admin, confusion, and long email trails. In this article, we'll quickly look at what's causing these issues. Then we'll show how automation and better technology removes them almost instantly. But let's start with the basics. What is a purchase order?A purchase order (or “PO”) is a document created by a buyer showing what it hopes to acquire from a supplier. It’s essentially a list of goods or services a company wants to buy. The purchase order should include a clear description, quantity, price, payment terms, and necessary delivery details. In most cases, when the supplier accepts a purchase order it becomes legally binding. They’ve entered into an agreement, and are now bound to deliver the goods. For companies with a clear purchasing or spend management process, POs let employees make clear internal resourcing requests. They can set out new equipment, software, or agency services they require, find the perfect vendor, and their manager can review and approve the request with all the information they need. This leaves a record of the request for everyone who needs to see it, including executive leadership and the finance team. Types of purchase orderThere are four key types of purchase orders to keep in mind:
In this article, we’re dealing with standard POs. Purchase order vs invoicePurchase orders and invoices are two different steps in the same process. The first is a request from the buyer which sets out clear expectations for the goods and services requested. The second is an account of the goods and services actually provided, issued by the seller so that it can be paid.
In a robust purchasing process, these two documents are closely connected. If unsure whether an invoice is justified and legitimate, the finance team (or purchasing manager) can refer to the original purchase order. They should be able to tell quickly whether the goods and services delivered match what was ordered. The value of purchase orders for business teamsThe primary purpose of POs is to create an agreement between buyer and seller. But before they even reach the supplier, POs serve a valuable function within the buyer company. Consider how a typical company transaction takes place without one:
If this transaction had begun with a purchase order, the finance team would have a full record of who made the order, and why. They would simply need to check that the invoice matches the PO, and they can pay it without issue. The purchase order processThe standard purchase order process contains several steps that really can’t be skipped or eliminated:
All of these steps are important, but that doesn’t mean that every step needs to be done manually or even by a person. Let’s look now at the key steps in this process that can be sped up and automated. Three-way matchingCompanies need to verify that all invoices received are legitimate. This requires “three-way matching,” which looks for consistency between:
If all three match, the supplier can be paid with no issues. Upgrade: Purchase order automationAs with most company processes, purchase orders are a great tool as long as they work efficiently. But when they become an administrative burden on busy team members, they become counterproductive. Purchase order automation lets you remove most of this administrative hassle from the process. And it’s really as simply as finding the right tools. How purchase order automation worksPurchase order automation is designed with the idea that some things are just done better by machines (or software). Instead of manually filling out paper purchase reports, scanning them or entering the data by hand, and then emailing them to those responsible around the company, you can digitize and centralize POs from the start:
There are countless benefits to handling purchase orders this way - a few of which we’ll get to shortly. But first, here’s how that standard process described above looks now:
You still have all the same important touch points and safety checks. But these no longer have to be done by hand. And the biggest difference: no more lengthy email chains. The process is smooth, asynchronous, and suits everyone involved. What key results can you expect from switching from paper-based purchase orders, to a digitized, automated process? A real-time view of committed spendOne issue with the standard purchase order process is that finance teams often don’t get involved until the end - the three-way matching stage. Until the invoice is received, they likely have no idea that the company has committed to spending a certain amount with this supplier. Digital purchase orders change this. Finance teams can see all POs as soon as they’re created. What’s more, they can see these commitments alongside other actual spend and future spend (subscription payments, for example). As a result, they can manage team budgets in real time and make sure that cash flow isn’t an issue. A clearer process for employeesMost employees don’t understand the PO process. It’s just not a core part of their role. So to create one successfully, they need training and guidance. And if left to do this on paper, there’s lots of room for error. PO software walks employees through the process, so they can’t really make mistakes. They just follow the steps, and it’s impossible to submit an incomplete or fundamentally flawed purchase order. More visibility for finance teamsAs mentioned above, purchase orders create a great order history for the company. Finance teams can see exactly what was ordered and why it’s necessary. But this still relies on purchase orders being submitted on time, and easy to find. If the PO is centralized in a platform, this is much simpler. Every purchase order lives in one place, easy for managers and finance teams to find. The PO is accessible from the moment it’s created, and from anywhere. This is incredibly valuable, especially with so many remote teams. One source of truthThe other benefit of having all purchase orders in one place is that this platform becomes the clear authority on company spending. And when that platform is also connected to company cards and expense claims - an all-in-one spend management system - finance teams always have all the data they need. More time saved, and fewer errorsAs with all automated processes, the most obvious benefit is time saved. Your software handles most of the “processing” work for you, so you can worry about other things. And automation also reduces mistakes from human error, which is usually the main cause of mistakes in the first place. With all these clear benefits in mind, which purchase order automation tool should you use? Spendesk Invoices - full AP automation (with built-in purchase orders)Naturally, we suggest you look into Spendesk to handle accounts payable alongside all your other company spending. Spendesk Invoices includes purchase orders to help employees make clearer requests, and to let finance teams do three-way matching before approving payment: Part of a centralized spend management systemOne fact that’s often overlooked is that invoices are just another payment method, fundamentally the same as credit cards and employee expense claims. All of these exist because a team member needs to spend company money to do their best work. The only difference is how they’re given access to that money. So why not manage them in the same process, with the same platform? Spendesk lets you track card payments, employee expenses, and invoices together. You always know exactly how much company money is committed and spent, and finance teams have that single source of truth they desperately need. And vitally, other teams only need to remember one tool, one login, one system. Which makes managing company spend easy - the way it should be. |