3 key benefits of streamlining your purchase requisition process
Purchase requisitions (PRs) are simple documents with a big job: they keep your organization’s spending under control.
Every organization needs to buy things, but instead of centralizing all purchasing decisions, efficiency comes from delegating that responsibility to employees. However, decentralized purchasing processes can create challenges. How do you ensure employees make good purchasing decisions, stay within budget, and follow purchasing policies? Purchase requisitions help you delegate spending without losing visibility and control, ensuring every purchase is necessary, approved, and within budget.
In this guide to purchase requisitions, we’ll examine the role purchase requisitions play in your procurement and financial management strategy. We’ll look at the components of purchasing requisitions and how they fit into the procure-to-pay (P2P) process, and we’ll explore the three key benefits they bring your organization:
- Improved procure-to-pay and accounts payable processes
- Financial controls and risk management
- Cash flow and spend management
By the end of this article, you’ll know how to leverage purchase requisitions to optimize your P2P process and get visibility and control over spending.
Let’s dive in.
What is a purchase requisition?
Purchase requisitions are how employees or departments ask the organization to purchase goods or services they need to do business. They outline the reason for the purchase, the items needed, and other relevant information.
What goes in a purchase requisition?
The PR contains the details of the purchase, including:
- Description of the needed products or services.
- Quantity and estimated cost of the items.
- The reason for the purchase.
- Date the items are needed.
- The employee or department requesting the purchase.
- Budget information such as account codes.
- Approver’s name, title, and signature.
What’s the difference between a purchase requisition and a purchase order?
Although they’re related, purchase requisitions and purchase orders (POs) have different functions. The primary difference is that the purchase requisition is an internal document used to initiate the purchase, and the purchase order is the external legally binding contract that orders the purchase from a supplier.
Steps in the purchase requisition process
The purchase requisition process is the first stage of the procure-to-pay workflow. It consists of four steps:
1. Preparing purchase requisition
The employee fills out a purchase requisition form and submits it to their manager for approval.
2. Purchase requisition approval
The approver reviews the purchase requisition to ensure that the request is necessary, the information is accurate, and that the department or organization has the budget to make the purchase. Higher-value purchases may require additional approvals from more senior managers.
After the purchase requisition is approved, it moves to the purchasing department.
3. Inventory verification
If the requisition is for goods, the purchasing department checks the inventory to confirm that the goods aren’t in stock. If the goods are in stock, they’re delivered to the requestor.
4. Purchase order creation
After checking the inventory, the purchasing department creates a PO to formally request the goods or services from a vendor. They choose a vendor and send them the PO to initiate the purchase. The purchase requisition process ends when the purchase order is issued. The purchasing department records the purchase requisition and purchase order to ensure the transaction is documented.
Advantages of an effective purchase requisition workflow
Used effectively, purchase requisitions provide strategic benefits well beyond their purchasing role. Now that we’ve outlined the purchase requisition process, let’s explore how PRs contribute to smoother P2P workflows, stronger financial controls, and more strategic spending.
1. Streamlined procurement processing
Purchase requisitions anchor the procure-to-pay process by ensuring that purchasing is transparent, centralized, documented, and controlled. Here are the ways the purchase requisition process helps improve the efficiency of procurement and accounts payable processes:
Meeting business needs
Purchase requisitions provide a simple and efficient way for employees to get the necessary goods and services to perform their jobs effectively. By streamlining the process of requesting and obtaining these resources, PRs help prevent delays, improve productivity, and keep operations running smoothly.
Centralizing and standardizing procurement processes
Purchase requisitions provide a standardized and centralized process for all purchase requests. Doing this makes it easier for finance teams to track, manage, and report all purchasing activities, regardless of the department originating the request. It also helps prevent redundant or overlapping purchases and simplifies audits by centrally storing and organizing documentation.
Enhancing transparency and accountability
Using a purchase requisition process makes the buying process more open and accountable. It provides a clear record of purchase requests and approvals so everyone knows what’s happening and who is responsible for what. Greater accountability ensures that company resources are used responsibly.
Optimizing vendor management
A centralized purchase requisition system simplifies vendor management. Procurement teams can create accurate and complete purchase orders, reducing order errors and disputes with vendors. Consolidating purchase requests also provides valuable insights into buying patterns. With all purchases in a single channel, procurement teams can strategically plan purchases, negotiate favorable pricing and terms, and optimize lead times for smoother operations.
2. Stronger financial controls and risk management
Purchase requisitions form the foundation for stronger controls and risk management by providing structure and oversight within the P2P process. This is achieved through the following:
Centralized risk mitigation and audit trail
Centralizing procurement activities through purchase requisitions lets organizations establish a single, controlled channel for purchase requests. This lets them monitor and enforce compliance with internal controls and regulatory requirements. PRs also help finance teams keep a complete audit trail by providing a clear record of who requested the purchase, who approved it, and the reason the purchase was made.
Preventing unauthorized purchases
A formal purchase requisition process protects against unauthorized spending by requiring detailed justifications and management approvals of purchase requests, ensuring employees only make authorized and necessary purchases. This prevents “shadow spend” (purchasing goods for personal use), fraud, duplicate, and redundant purchases, protecting the organization from financial loss.
Validating suppliers
A centralized purchase requisition system lets organizations maintain an approved vendor list, ensuring purchases are only from trusted vendors. When the organization needs to add new vendors, they can be added via a structured onboarding process. Validating suppliers prevents fraud and ensures the organization sources goods and services from suppliers that meet quality, sustainability, and ethical standards.
Facilitating effective approval workflows
Purchase requisitions help streamline approvals by providing the important details about the purchase request in one place. Approvers can quickly check the PR to ensure it’s valid and within budget. PRs also facilitate multi-level approval processes, meaning multiple approvers need to sign off on a purchase, preventing unauthorized purchases.
Enforcing separation of duties
The purchase requisition process separates the responsibilities of requesting, approving, and completing a purchase. Separating these duties prevents a single person from having complete control over the transaction, reducing the risk of occupational fraud.
3. Strategic cash flow and spend management
Centralizing the P2P process with purchase requisitions gives finance teams greater visibility and control over spending. This enables strategic spend management and cash flow optimization by:
Timely data analysis and insights
Purchase requisition data provides finance teams with real-time insights into spending patterns and vendor performance. This allows them to identify areas for spend optimization or cost reduction, such as negotiating volume discounts with vendors. Analyzing PR data also helps detect and investigate unusual spending patterns. For example, a sudden increase in purchases from a new supplier could be a sign of insider fraud and should be investigated further.
Optimizing budgetary control and purchasing
Purchase requisitions keep purchases aligned with the organization’s budget. By requiring managerial review and approval of every purchase, organizations can ensure that spending doesn’t exceed the available budget. Analyzing spending patterns helps anticipate future needs and allocate budget resources strategically. For example, a sharp increase in maintenance costs could indicate that vehicles are nearing their end-of-life, prompting budget adjustments for future replacements.
Centralizing PR data also lets procurement teams identify opportunities to save money by consolidating vendors or making discounted bulk purchases. For example, if a procurement manager notices that departments buy office supplies from various suppliers, they can negotiate a bulk supply agreement and discounted pricing with a single supplier.
Strategic cash flow management
Tracking purchase requisitions gives finance teams visibility into upcoming approved expenditures. This enables proactive cash flow management, ensuring sufficient cash is available to meet payment obligations on time, avoid late fees, and allocate working capital effectively.
Next Steps: Optimize your purchase requisition process
Take action to enhance visibility and control over your P2P cycle. These key steps will help you streamline purchasing and minimize financial risk.
Establish a clear PR approval process
To ensure complete oversight of spending and prevent unauthorized purchases, create a clear approval process based on spending limits and authority levels. Document the approval process and outline roles and responsibilities at each stage. For example, purchases under $25,000 might only need manager approval, while higher amounts require approval from the finance department. To streamline approvals, especially in organizations with complex approval structures, implementing an automated procurement system can significantly improve efficiency in routing PRs to the right approvers.
How to start: Review your current approval process and identify areas for improvement. Document your organization’s spending limits and approval levels.
Centralize PR processes
Get better visibility and control over purchasing activity by centralizing purchase requisition processes. A centralized PR system lets you easily identify trends, potential issues, and opportunities for cost savings. It also facilitates better collaboration and communication with other departments and suppliers.
How to start: Evaluate your current purchase requisition process and identify areas for centralization. For example, a simple way to centralize PR tracking is to enter all PR details in an Excel spreadsheet or consider implementing a P2P automation solution that offers built-in centralized PR management and workflows.
Get feedback from stakeholders
Continuously improve your purchase requisition process by actively seeking feedback from employees and suppliers. Regular feedback fosters collaboration among stakeholders, helping identify bottlenecks, making processes more user-friendly, and streamlining P2P workflows. It also helps you reduce risks by staying informed about fraud tactics and potential issues. For example, a vendor might notice unusual order patterns and proactively alert you to potential fraud, letting you investigate and prevent financial losses.
How to start: Organize a focus group of key employees and vendors to gather feedback and discuss areas of improvement.
Automate the purchase requisition process
Streamline the purchase requisition process by automating manual tasks with procure-to-pay software. P2P platforms automate manual purchase requisition processes, such as creating purchase requisitions and routing them to the correct approver. They reduce manual data entry, minimize errors, and improve productivity by freeing employees to do higher-value work. For example, Stampli’s Cognitive AI™ PO Matching significantly reduces manual PO-to-invoice matching tasks and improves P2P efficiency.
Automated systems can improve compliance by enforcing internal controls and purchasing policies. They also support strategic spend management by providing valuable insights and analytics into spending patterns, vendor performance, and other key procurement metrics.
How to start: Research different P2P software solutions. Compare features, pricing, and user reviews to find the best fit for your organization’s needs. Stampli’s P2P automation guide is a great place to start.
Evolve your P2P process with Stampli
Stampli’s evolutionary P2P solutions are the best way to streamline P2P workflows, strengthen controls, and get complete visibility and control over your spending.
By optimizing your purchase requisition process, you can delegate spending effectively while maintaining visibility and control. Implement the strategies in this article to streamline your P2P workflows, strengthen financial controls, and save money.
Transform your P2P processes by leveraging the power of Stampli’s evolutionary P2P solutions. Stampli is the #1 AP automation solution according to customer reviews on G2.com, empowering organizations to:
- Accelerate P2P workflows: Eliminate manual tasks, minimize errors, and free employees for higher-value work.
- Get complete visibility and control: Gain real-time insights into spending patterns, track purchases, and proactively manage cash flow.
- Implement without major internal resources: Stampli implements in days, with no rework to your ERP or existing processes.
Ready to streamline your P2P process and gain greater control over spending? Contact us today for a free demo of Stampli.
