Purchase Order Approval: Does Your Business Need One?

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B2B buying decisions involve considering 40 value elements before making the purchase decision.

With the increase in your contractor business scale, your product requirements will increase.

đź“ťKey Takeaways:

  • Get familiar with the purchase order flowchart.
  • Know how does PO approval bring impact in your business.
  • Plus, the entire process from PO request generation to getting approval – in detail.
  • Before knowing key advantages, you must know different approaches.
  • Lastly, how PO approval will benefit your business.
  • Brownie Point: Avoidable factors to boost PO approval process

Different business segments will demand different things that need to be fulfilled quickly and effectively to ensure that there’s no hindrance in the business operations.

Your purchasing team must process approval requests following a purchase order approval (PO).

You need to streamline your purchase order approval process to ensure no bottlenecks, and the procurement team can connect with the vendor to efficiently deliver the supplies to the required department.

But you must understand the different important aspects of purchase order approval workflows before effectively integrating the process into your existing business ecosystem.

Purchase Order Approval: Definition

Purchase order approval is the flow of actions requiring different stakeholders to validate a purchase order and process the requirement immediately.

For different purchase orders to be legally binding contracts, your business needs to pass them internally to ensure there’s no misunderstanding between your seller and your management.

But that’s not it.

Purchase order approval has greater significance for your contractor business. Have a look.

Create A Purchase Order & Get it Approved!

Importance of Purchase Order (PO) Approval

1. Better cost analysis

A key benefit of PO approval process is that it helps your business control its costs and in inventory management.

better cost analysis

Getting the approval of the purchase order before the requirement is sent to the supplier allows your procurement team to review the spending and analyze the expense.

Based on the current business scenario, you can avoid spending if the purchase looks unnecessary or it’s already in your inventory. Effective cost control enables you to balance your funds and ensure that your business balance doesn’t turn negative.

2. Great visibility of your business expenditure

If you don’t have a PO process, you won’t know the committed spend until you get the supplier invoice.

great visibility of your business expenditure

It won’t help you manage your business capital effectively during the daily operations.

A purchase order approval flow enables your financial team to have instant visibility into the spending and other related obligations.

You know how much is to be paid, what is approved for purchase, and what is in the approval process.

You can also get a bird’s eye view of the purchase orders that are not created and not entered in the entire process. Based on the purchase history data, you can forecast different trends to help you make informed decisions for better business results.

3. Smooth purchase order management by your team

Your accounts payable representative team has to reconcile the purchase orders and invoices, resulting in increased effort and time consumption.

smooth purchase order management by your team

And if the purchase orders are not in a single place, it can cause havoc for your business operations. But having purchase approvals in process, you can ensure all the purchase orders are processed through the common process, making it easier for your team to manage operations.

The accounts payable team can also verify the invoice against the purchase order placed by your end. It can help to ensure that you are billed against your demands and that there are no discrepancies or human-error in the billing and payment process.

Now, let’s understand how the purchase order approval process works to help you analyze it better.

How to Get a Purchase Order Approval? (Step-Wise Approval Process)

You need to assign different roles to your employees to ensure that the working of the purchase order is smooth and there are no issues in the future.

how to get a purchase order approval

So, filter out the individuals who can request the purchase of the items and who can approve those requests.

If the average purchase order is for a small amount, it can be approved by the department manager in your contractor business, but if the consignment is for a large order, you need the involvement of higher management to approve the purchase order.

Once the approval and request levels are in place, you must design the PO approvals to execute them. You have two options: choose a manual process or go with an automated purchase order approval process with the help of purchase order management software.

The automation process works more efficiently and with minimal errors, and we recommend you choose the automated purchase order approval flow.

Irrespective of the type of process you integrate into your business ecosystem, here’s how to get a purchase order approval:

1. Request generation

When the employee or your department requires specific services or goods, you can start the purchase order process. The employee needs to create a purchase requisition that includes the details of the required items from a specific vendor, preferred pricing, when it is required, and where it needs to be delivered.

You can also ask your employee to justify the purchase, which can help the approval team process the request faster.

2. Approval

The purchase requisition will be reviewed by the person designated for purchase order approvals depending on the scale of the requirement and the capital involved. They need to ensure controlled spending of the budget for operational efficiency.

Once the request is approved, it is further converted into an official purchase order.

3. Purchase order issuing

The approved purchase requisition is converted into a purchase order with a unique number and shipping details for smooth processing. The purchase order is transmitted to the selected vendor via digital or offline channels.

4. Go through the vendor response

Once the vendor receives the purchase order, they provide you with the receipt and the tentative data to receive the goods.

Once the vendor receives your official purchase order, it creates a legally binding contract for the transaction to happen.

5. Goods received

Your employees need to check the shipment against the packing slip to ensure that the goods received are not damaged, missing, or not as the requested purchase order.

If there are discrepancies, the vendor should be immediately notified of the issue to ensure that the goods are supplied based on the purchase order.

6. Process the invoice

Once the final check is completed, your accounts payable team receives an invoice from the vendor. The team needs to perform a three-way check that includes documents like the original purchase order, the vendor’s invoice, and the receiving report or the packing slip to handle the control spend and ensure transactional data matches.

Once the check is completed, the accounts payable department pays the requested amount to the vendor per the initially agreed terms by the parties involved. The invoicing process is initiated by the seller based on the approved purchase order.

What Are Different Approaches for Purchase Order Flow Chart?

There are different approaches to setting up an efficient purchase order approval workflow. Have a look:

1. Workflow based on the amount

The most common approach to designing the purchase order workflow is based on the total purchase order amount.

The approach takes care of the basic authorization and approval of the total expense before making the purchase order that can be shared with the supplier.

2. Workflow based on the categories

The second approach to designing the workflow is to set up a purchase category.

Businesses and contractors follow one workflow for all the categories they operate. So, if you are purchasing office supplies or high-end capital equipment, the approval process is similar.

But because different categories have different needs, they should change the procedure and set up the approval process accordingly.

3. Approval of budget owners

Another approach for setting up the workflow is to have a budget owner review before sending it to the supplier.

You need to assign the duties to the individual who oversees your business’s budget. It can be the department head or someone in the finance department who looks after the planning and budget.

The person must check why the specific purchase is required and confirm the budget before finalizing the purchase order.

If the purchase is over budget, then the budget owners should reconsider the approval or ask the employees to lower the quality of the request to ensure that the business budget is not compromised.

Benefits of Purchase Order Approvals

Once the purchase order approval process is integrated into your business ecosystem, it changes how you purchase goods or services.

benefits of purchase order approvals

It provides excellent benefits that can help you scale your contractor business and achieve your desired goals.

You can:

1. Increase the accuracy of your orders

The purchasing process becomes accurate because of the systematic flow that checks all the purchase details. The procurement head knows what’s ordered, and every nitty-gritty detail can be cross-checked to remove misconceptions during the order execution with the vendor.

2. Control business purchases

A purchase order approval process enables you to check what’s being purchased for your contractor business. It can help you control and approve purchases, you can balance the budget and expenses effectively.

3. Provides security

An automated purchase order approval flow ensures that the access for approving and requesting the purchase order is limited to specific employees. It can ensure no involvement of unwanted users accessing the purchase order approval flow.

4. Minimize errors

You can minimize the chances of human errors once the purchase order approval flow is streamlined. With a systematic flow, everyone involved understands their responsibilities, and automating the processes eliminates the manual inefficiencies that can help enhance the accuracy and effectiveness of the process.

Want to Send a Purchase Order?

InvoiceOwl lets you quickly create one for yourself with a single click

Where Does Purchase Order Approval Fall Short?

The purchase order approval can fall short if you choose the manual processing of the purchase order approvals.

Traditional or manual processing has a lot of paperwork, inefficiencies, and chances of human errors that can result in discrepancies and cause business troubles.

An automated purchase order approval process increases the speed and minimizes the effort for the approval and procurement of products.

You can also integrate powerful purchase order automation software into your business ecosystem to help you scale your business to new heights.

But the purchase order software market is increasing at a CAGR of 7.6%, and it’s difficult for contractors to filter out the best for their business requirements and needs.

But we have filtered the best for your business. If you still have doubts, questions, or concerns, then get to our next section for answers and resolutions.

Frequently Asked Questions
  1. Why is a purchase order approved?

    A purchase order needs to be approved to ensure that the business cash flow is managed and the best minds associated with the business are taking the important procurement and investment decisions. You need at least one approver before the purchase order reaches the seller.


  2. Who should approve a purchase order?

    The designated authority can handle the PO approval process depending on the scale of the request and ensure compliance with the set rules. If it’s a small-scale procurement request, then the head of the department, office manager, or sometimes IT department can handle the purchase order approval. But if the consignment is large, you need higher management authority for the approval.


  3. How to automate the purchase order processing?

    You can integrate an automated approval process by integrating a powerful purchase order management software that can help you escape the manual processing inefficiencies and ensure that you can achieve the desired purchase process faster. It can help you include payment information, order details, and other relevant information.


  4. Which is the best purchase order processing software?

    InvoiceOwl is the leading software that offers more than just purchase order processing management. It is a powerful invoicing software that offers multiple features that can streamline your contractor business.

InvoiceOwl Is the Best For Automating Your Purchase Order Approval

InvoiceOwl is the leading estimation and invoicing software for contractors and offers great purchase order management abilities.

Your employees can quickly access the software purchase order templates and create purchase orders using their laptops, mobile, or tablets.

The software enables you to create purchase orders on the go for free, saving your time, money, and effort.

You can track your purchase orders and save them in one place so that the concerned authority can approve the purchase orders and send them to the preferred vendors for completing the procurement process.

Apart from purchase order processing, InvoiceOwl offers estimates processing, recording a credit memo journal entry, reporting, payment processing, invoicing, and other impactful features to streamline your business finances.

The software is ideal for industries like construction, electrical, HVAC, carpentry, landscaping, plumbing, roofing, and other leading service-based niches.

Access the and transform your purchase order approval flow.

Author Bio
Jeel Patel
Jeel Patel
Founder

Jeel Patel is the Founder of InvoiceOwl and is the main curator & writer of the content found on this site. With ideals of quality, commitment, and perseverance, he believes in creating lasting business relationships with the clients.

United States

Washington

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