Best practices for purchase order management and maintenance

According to the World Bank, governments worldwide spend approximately $13 trillion every year on goods and services — and as much as one-quarter of that money is lost on inefficient procurement management practices.

If you’re not optimizing purchase order management, you’re losing money too. And while your losses are probably not in the trillions of dollars, they may be more than you can afford.

Purchase order (PO) maintenance is one of the core elements of effective procurement management. A well-structured PO management system ensures you have visibility, accountability, and control over every transaction. It helps you avoid budget overruns, missed deadlines, errors, fraud, and damaged vendor relationships. 

In this article, we’ll give you the knowledge and tools you need to manage POs effectively. You’ll learn about:

• The different types of purchase orders
• How to track and manage open POs
• Making and logging PO changes
• When, why, and how to close POs
• Best practices for PO maintenance

We’ll start by looking at the different types of POs.

Types of purchase orders

Let’s look at how to maintain the three main types of purchase orders: standard POs, blanket POs, and planned POs. 

Standard purchase orders

Purchasing departments use standard purchase orders for one-time purchases. They are usually for a set quantity of goods or services to be delivered on or by a specified date. For example, you could use a standard purchase order to buy a new laptop for an employee.

Blanket purchase orders

Blanket purchase orders are used for recurring purchases over a defined period. Organizations usually use them when they need to buy products or services on an ongoing basis. For example, a company may have a blanket purchase order for stationery or office supplies.

Planned purchase orders

Organizations use planned purchase orders for anticipated purchases. They’re usually used when the organization wants to allocate the budget for the purchase, but the exact purchase details aren’t confirmed. For example, a power utility company may issue a planned purchase order for a major purchase like a steam turbine to allocate the appropriate budget amount. They’d refine the purchase order later when the updated costs and delivery terms for the turbine are available.

While each type of PO serves a different purpose, you track and manage them the same way. Let’s look at the key practices for managing open purchase orders.

How to track and manage open purchase orders

PO management focuses on maintaining complete and accurate records for each open PO, tracking PO status, and ensuring timely processing throughout the PO cycle. Good management helps you control spending, proactively manage issues, and negotiate better procurement deals. Here’s how to get started.

Centralize PO processing

It’s a lot easier to track and manage purchase orders when they’re all in one place. Centralize your POs in a spreadsheet or PO tracking system so your procurement team can quickly check a PO status or make changes. 

Identify and manage exceptions

Things don’t always go as planned. Develop a system to identify and address discrepancies like price variations, quantity mismatches, or delivery delays. Start by establishing procedures for handling common issues, including who to contact and how to document the problem and resolution.

Ensure clear communications

Keep procurement, receiving, accounts payable, and vendors in the loop. Have a system to ensure everyone is communicating clearly about PO status, changes, and any issues that come up. Even simple steps like regular PO status meetings or collaborative online workspaces can make a big difference.

With these practices in mind, we’ll look at how you can make and log changes to purchase orders.

Making and logging changes to POs

Sometimes, you’ll need to change an open purchase order. For example, you might want to add products or services to a blanket PO or adjust the pricing and terms on a planned PO before issuing the final version to your supplier.

Modifying open POs can be risky without a process for managing changes. For example, if you increase the value of a PO without adjusting the associated budget, you could easily get into a situation where you’ve overspent. To avoid these pitfalls, follow these PO management practices.

Establish a PO change order process

Create procedures for requesting, approving, and documenting changes to POs. For example, you can implement a standard change request form to capture details like the reason for the change and the impact on cost or delivery. Define clear approval workflows to ensure the right person reviews and authorizes changes.

Maintain a complete audit trail

An audit trail lets you keep track of all the changes made to a PO. It improves transparency and builds accountability into your PO change process. Establish a complete audit trail by logging what was modified, the time and date of the change, and who made the change.

Implement PO version control

Version control helps prevent confusion and errors caused by using an outdated or incorrect PO. Set up a system to change the PO version whenever a change is made. Save the old versions to keep a record of the changes (and maintain a complete audit trail), and ensure that the most up-to-date version is used for processing and payment.

Communicate changes to stakeholders

Avoid miscommunications and errors by communicating approved PO changes to other departments and vendors. Centralizing POs with an automated system makes this easier. Most platforms let you set up notifications to let stakeholders know when a PO has been changed.

Just as you need a clear process to track and manage changes to POs, you also need a defined procedure to close them out. Let’s talk about why you should close POs, when to close them, and the best way to do it. 

When, why, and how to close purchase orders

Closing an open purchase order is a crucial step in the PO cycle. Closing a PO lets you reconcile the purchase with your budget, contributes to preventing overspending, and allows you to close your books with a clear record of all finalized transactions. Here are the tasks involved in closing POs effectively.

Set criteria for closing POs

Start with when and why you want to close an open PO. Define clear criteria for closing POs, such as:

• Order is complete: The goods or services have been received, the invoice has been matched, and the payment has been processed.
• Budget exhausted: The budget allocated to the PO has been fully exhausted.
• Time’s up: Close all open POs at the end of the fiscal year to prevent outstanding orders from carrying over into the next accounting period.
• Purchase isn’t needed: You no longer need the product or service and don’t plan to buy it soon.
• A supplier can’t deliver: The good or service is no longer available, or the supplier has failed to meet delivery or quality requirements.
• Project completion or cancellation: The project for which the PO was created has been completed.

Ensure timely closure

Set procedures to ensure POs are closed as soon as the criteria are met. This prevents unauthorized spending, lets you reconcile the purchase with your budget, and helps you close your books faster.

Verify POs before closing

Before closing a completed order, ensure three-way matching has been performed. Verify that the quantities, prices, and other details match, and investigate and address any discrepancies before paying the invoice and closing the PO. This process helps prevent overpayments and payment errors. It also helps you maintain accurate financial records by ensuring all transactions are approved and recorded correctly.

Close the PO

Once you’ve verified that the criteria for closing the PO are met, it’s time to close it. Update the PO status to “Closed” or “Completed.” You may want to add a note explaining why the PO was closed for future reference. Notify stakeholders that the PO has been closed, and archive the PO and related documents.

Best practices for purchase order management

Effective PO maintenance involves establishing clear processes and procedures to build clarity, control, and accountability into your PO cycle. Follow these best practices to get the most out of the tips and strategies we’ve shared in this article.

Set clear and simple procedures

Make your PO management policies and procedures easy to follow and accessible to relevant stakeholders. Keeping things clear and simple helps employees understand their roles and responsibilities and encourages their compliance with the procedures. Invest in training to ensure your staff has the knowledge and skills needed to manage POs effectively.

Regularly audit your processes

Periodically review your purchase order processes and systems to identify areas for improvement. Also, review your PO records to ensure they are complete and up to date. Use the audit findings to update procedures, strengthen internal controls, and improve training.

Standardize purchase orders

Using a standardized purchase order form across your organization makes it easier to track, record, and review PO details and status. 

Leverage P2P management software

Look into how accounts payable and procure-to-pay automation solutions can streamline PO maintenance processes. Here are some ways other organizations have used automated systems to improve how they manage their POs:

• Streamlining manual tasks: Automation replaces manual tasks like purchase order creation to reduce errors and improve processing speeds.
• Approval routing: Solutions automatically route POs to the appropriate approver, ensuring oversight of purchases.
• Real-time visibility: Platforms provide real-time insight into PO status and performance metrics, letting you proactively manage your PO cycle.
• Intelligent three-way matching: Solutions like Stampli Cognitive AI(™) PO Matching automatically verify every PO and invoice to improve accuracy and reduce manual processing.
• Reduced costs: Automation systems improve productivity and accuracy, reducing staffing costs and costs due to errors.
• Seamless ERP integration: Leading P2P and AP automation platforms integrate with ERPs to share data and streamline PO management.

Connect the P2P dots with Stampli Procure-to-Pay

Stampli Procure-to-Pay is the ideal way to optimize purchase order maintenance and build visibility, control, and accountability into your procurement processes. The only finance operations platform centered around accounts payable, Stampli can help you completely recover the time and effort your team spends matching POs and managing invoices.

Here’s how Stampli helps you connect the dots:

Purchase requisitions 

• Six pre-built intake forms (Purchases, office supplies, travel, IT hardware, software, internal service tickets)
• Custom intake forms
• AI-powered preferred items + vendors
• Approval workflows
• Budget validation

Purchase request outcomes

• PO in ERP
• PO in Stampli
• Virtual & physical cards
• Service tickets

Vendor management

• Self-serve vendor onboarding
• Vendor portal
• Automated document compliance
• Integrated vendor messaging

Accounts payable

• Automated Invoice capture and coding
• Cognitive AI PO matching
• Fixed and dynamic invoice approval workflows
• Seamless ERP integration

Cards and Payments

• Payment approval workflows
• Payment execution
• Physical & virtual cards
• FX risk mitigation tools

“Stampli has successfully automated our AP process for invoices and PO communications!”

One customer who was struggling with manual processes they described as a “nightmare” describes how Stampli has transformed their accounts payable: “Stampli has successfully automated our AP process for invoices and PO communications!

“It holds individuals throughout our company accountable for their reviewing and approving Invoices. We can easily manage correspondence. Track invoices that are past due. Pull everything into one nice neat report to review with our users. The reports make a great resource to share with GMs that can quickly review what vendors or invoices that may be causing holds for our company. CORRESPONDING within Stampli vs multitudes of emails, team chats and phone calls is THE BEST! Stampli is easy to learn and use.”

Ready to transform your PO cycle? Contact us today for a free demo of Stampli Procure-to-Pay.