Purchase order management essentials for procurement teams

Purchase order management is a process involving creating, tracking, and managing purchase orders (often abbreviated as POs). PO management isn't just about keeping your paperwork in order. It's a critical cog in the machinery of your business's financial health. Every purchase order tells a story - of money spent, inventory gained, and supplier relationships forged. When done right, it's like having a crystal ball for your cash flow, letting you peek into future expenses and plan accordingly.

A purchase order is a legally binding document that outlines the details of a purchase you, as a buyer, agreed to with your supplier. This legally binding document serves as a detailed blueprint for your transaction, spelling out the essentials of your deal. It captures the what, how much, and when of your purchase: the exact items or services you're buying, the agreed-upon price for each, and the date you expect them to arrive at your doorstep. Think of it as a financial snapshot, freezing in time the terms you've negotiated. It protects both you and your supplier, ensuring everyone's on the same page and setting clear expectations.

PO management is integral to all businesses’ accounting and financial management. It’s also an intrinsic part of supplier management, and if not done right, it can disrupt operations.

The purchase order lifecycle is the series of steps or stages a purchase order goes through, from creation to closure. It’s also known as the purchase-to-pay (P2P) cycle and typically involves the following stages:

1. Purchase requisition

Everything starts with a requisition, i.e., an internal document that an employee or department creates to request the purchase of goods or services. Since the purchase requisition initiates the purchasing process, it is your first audit trail entry. For context, an audit trail is a chronological record of all the documents and activities associated with a transaction.

2. Request for quotes (RFQs) or proposals (RFPs)

Depending on whether you know what specific items you need to purchase, you’ll need to send RFQs or RFPs to different vendors or suppliers. If you’re clear on what you need, you send out an RFQ focusing on the price. Conversely, suppose you want to see what solutions a vendor offers first. In that case, you’ll usually send out an RFP before sending out an RFQ.

3. Supplier selection

You compare RFQs or RFPs to determine which vendor offers the best value and quality.

4. Contract negotiation

This stake involves negotiating contracts with the selected vendor based on the RFQ or RFP to establish the tone of your business relationship. Once you agree, you put it all in black and white.

5. Purchase order creation

Once you set up the contract, a procurement agent formally creates the purchase order (usually using procurement management software) and sends it for approval.

6. Purchase order approval and transmission

Depending on your company’s purchase procedures, the appropriate stakeholders may need to approve the new purchase order. Your procurement department will then send the approved purchase order to the supplier.

7. Receive goods and services

The supplier delivers the goods or services. Once you receive them, you send a goods received note (GRN) if the delivery is on time and the quality meets your requirements.

8. Invoice processing

Your organization receives and verifies the vendor’s invoice and compares it to the purchase order and the GRN to check for item details, quantities, and price inconsistencies. This process is called three-way matching. Upon approval, your team records the invoice in accounts payable (AP).

9. Authorize invoices and pay vendors

Once everything checks out, you authorize the invoice and pay the vendor.

10. Closure and bookkeeping

A successful purchase order process ends when you, as a buyer, have received the goods or services, processed the invoice, and paid the supplier. You then close the purchase order and record the payment transaction in your accounting system.

The PO lifecycle can vary depending on your business’s needs, size, and structure.

For example, many SMBs don’t have a dedicated procurement department. In those cases, the CEO or the owner usually handles much of the process, so steps like approval aren’t relevant.

In other larger companies, the PO lifecycle may be more complex and involve extra steps for approval, control, or spend management. However, the basic steps are the same for all businesses.

Purchase order management is a multi-step process that involves planning, organizing, directing, and tracking the different stages of the PO lifecycle. Each step is critical to guarantee a smooth and efficient purchasing process.

Planning and creating purchase orders

The first step in PO management is planning and creating purchase orders. This process involves:

1. Identifying purchase needs to determine what goods or services your business needs and when

2. Selecting suppliers to choose reliable sources that meet your company’s needs in terms of price, quality, and delivery time

3. Negotiating terms like price, quantity, delivery date, and payment terms with the supplier typically involves setting up blanket purchase orders (BPOs). BPOs are contracts that fix the vendor’s price of goods or services for a specified time so you can make purchases on an as-needed basis without worrying about price hikes and going over budget.

4. Designing and creating purchase order templates to guarantee a consistent format for all issued POs across departments

5. Creating the purchase order using predefined purchase order forms accelerates the issuance process while guaranteeing that it includes all necessary and relevant information

A standard purchase order typically consists of the following information:

• Description of goods or services

• Supplier’s name and address

• Buyer’s name and address

• Purchase order number

• Approval signatures

• Payment terms

• Delivery date

• Date of issue

• Quantity

• Price

Receiving and inspecting

Once the purchase order is on its way to the supplier, the next crucial phase kicks in: receiving and inspecting the goods or services. This stage is your quality control checkpoint, where vigilance pays off in spades. As items arrive, your team springs into action, meticulously verifying that the delivery matches your original order down to the last detail. But it doesn't stop there - a thorough inspection follows, scrutinizing each item for potential defects or damage that might have occurred in transit. If any discrepancies crop up, they're carefully documented, setting the stage for swift communication with the supplier to iron out any issues.

This process isn't just about ticking boxes; it's your safeguard against shortages, overages, or quality compromises. By conducting these thorough inspections, you're ensuring that what lands in your inventory is exactly what you ordered - no more, no less - and up to the quality standards your business depends on. It's a critical step that can save you headaches, disputes, and potential financial losses down the line. Remember, the devil is in the details, and in this phase of purchase order management, those details can make all the difference between a smooth operation and a costly setback.

Processing invoices

Handling invoices is the next big step after you've received and checked your goods or services. It's where the rubber meets the road in terms of keeping your finances straight and your suppliers happy. The key here is the three-way match - you're basically playing detective, making sure your invoice lines up perfectly with your purchase order and what you actually received. It's not about being picky; it's about making sure everyone's on the same page before you start writing checks. And if something doesn't add up? You'll need to get on the horn with your supplier and sort it out pronto.

Now, let's be real - processing invoices can be a real slog, especially if you're doing it all by hand. But here's the good news: technology's got your back. Tools like Brex can take a lot of the grunt work off your plate. We're talking major time savings and way fewer slip-ups. In fact, businesses using Brex's automated invoice processing are shaving hours off their monthly workload and making up to 10 times fewer mistakes than they would pushing papers around. But it's not just about saving time and avoiding accounting errors. This tech keeps your payments flowing smoothly and your books in tip-top shape. At the end of the day, nailing your invoice processing doesn't just keep your accountant happy - it gives you more time to focus on the big picture stuff that really moves the needle for your business.

Inventory management

Inventory management is the art of keeping tabs on your company's stock, from raw materials to finished products. It's all about striking that perfect balance - having enough to meet customer demand without tying up too much cash in warehousing costs or risking spoilage. This balancing act plays a key role in purchase order management, weaving its way through both the planning and control phases. When you're setting up your PO strategy, you'll need to establish inventory thresholds that trigger new orders. And as you track your stock levels, you're constantly on guard against shortages that could leave customers empty-handed.

Getting your inventory numbers right is essential for smooth operations. That's why modern businesses are turning to specialized software to keep track of every item that moves through their warehouses. These high-tech tools record it all - what's coming in, what's going out, what's being used up, and what's being bought. It's like having a detailed diary of your inventory's life story, updated in real-time. With this level of insight, you can make smarter decisions about when to reorder, how much to keep on hand, and how to keep your supply chain humming along efficiently. In the end, solid inventory management isn't just about counting boxes - it's about keeping your business running smoothly

Tracking and process improvement

Keeping tabs on your purchase orders is like having a crystal ball for your business. It's not just about checking boxes; it's about seeing the big picture of how your purchasing process is working. By tracking your POs, you get a front-row seat to the show - you can spot bottlenecks before they become headaches, see how your suppliers are really performing, and figure out if your process is actually doing what it's supposed to. Plus, when everyone on the team can see what's going on, it lights a fire under them. Suddenly, it's not just about pushing papers; it's about making sure every order is spot-on because everyone can see how their piece fits into the puzzle.

Now, if you really want to kick things up a notch, start paying attention to some key performance indicators (KPIs). We're talking about things like customer satisfaction, supplier response times, product quality, pricing competitiveness, and on-time deliveries. But don't stop there - dive into tail spend management too. This often-overlooked area can reveal surprising insights about your smaller, infrequent purchases that add up over time. It's like a report card for your suppliers and your own process, showing you where you're acing it and where there's room for improvement.

By keeping an eye on these metrics, including those related to tail spend, your procurement team can make sure they're dancing with the right partners across the board. And when you've got reliable suppliers for both big-ticket items and those seemingly insignificant purchases, your whole procurement cycle starts to flow smoothly, like a finely tuned orchestra. It's not about getting buried in spreadsheets; it's about building a comprehensive purchasing process that really works for your business. When you get this right, you're not just buying stuff - you're setting your business up to thrive. You're catching problems before they happen, making smart decisions based on real data, and turning your purchasing process, tail spend and all, into a secret weapon for success.

Ever wondered how top companies stay ahead of the game? The answer might lie in their approach to purchase order management. In this section, we'll reveal the powerful advantages that come with mastering this critical business function.

Reduced errors

Let's face it - mistakes in purchasing can be a real headache, not to mention a drain on your bottom line. That's where smart purchase order management comes in. It's like having a safety net for your buying process, catching those pesky errors before they can cause trouble.

Think about it - when you're doing everything by hand, it's easy for things to go sideways. A misplaced decimal here, a typo there, and suddenly you've ordered 1,000 widgets instead of 100. Oops. That's why more and more businesses are turning to automation tools like Brex. It's not about replacing people - it's about giving them a powerful sidekick to help keep things on track.

But here's the thing - you can't just set it and forget it. To really knock out those errors, you need to come at it from all angles. First off, make it a habit to regularly kick the tires on your process. What's working? What's not? Where can you tighten things up?

Then, invest in your team. The more they know about preventing errors and why accuracy matters, the sharper they'll be. And while you're at it, bake in some quality control measures. It's like having a second pair of eyes on everything.

And here's a pro tip: never underestimate the power of a good proofread. That final check before you hit send on a purchase order? It could save you from a world of hurt down the line.

Put all this together, and you're not just cutting down on mistakes. You're building a purchasing process that's slick, efficient, and reliable. And in the end, that's going to make your whole business run a whole lot smoother.

Improved spend management

Imagine turning your purchase order process into a powerful tool for controlling your company's wallet. That's what effective PO management can do - it's like upgrading your financial eyesight. When you've got a clear, no-nonsense way of handling purchase orders, suddenly you're not just buying stuff; you're uncovering a whole new world of money-saving tricks.

Here's how it works: With a solid PO process, you start seeing patterns in your spending. Maybe you notice you're buying the same things from different suppliers at varying prices. Boom - there's your chance to negotiate better deals. Or perhaps you spot an area where money's just slipping away unnecessarily. Time to plug that leak.

But it's not just about spotting problems. Effective purchase order management can lead to improved spend management. You can create budgets for different categories - think of it like giving each part of your business its own piggy bank. And here's the best part: you can watch in real-time how your actual spending measures up against these budgets. No more surprises when the bills come in. You're in control, able to make smart decisions on the fly and keep your company's finances running smooth as silk. It's like having a financial superpower - you're not just managing spend, you're mastering it.

Better product quality

A savvy purchase order management process isn't just about keeping your paperwork in check - it's a powerful tool for boosting product quality. Interestingly, nearly two-thirds of top procurement officers believe building strong relationships with suppliers is a top strategy to deliver value. When you craft your purchase orders with crystal-clear quality standards and detailed specifications, you're essentially creating a roadmap for success. You spell out exactly what you need in terms of materials, workmanship, and performance. To leave no room for doubt, you can even attach technical specs, drawings, or quality control checklists to your POs. It's like giving your suppliers a high-definition picture of your expectations.

But the quality journey doesn't end when you hit 'send' on that purchase order. Keeping tabs on your suppliers' performance and holding them accountable is what turns good products into great ones. It's about creating a culture of excellence that goes both ways. You set clear consequences for missing the mark, dive into past performance data to spot trends, and conduct regular quality checks to keep everyone on their toes. This approach doesn't just get you better products - it builds a partnership where both you and your suppliers are constantly pushing for improvement.

Minimize delays

A finely-tuned purchase order system acts like a turbo boost for your business, propelling you past delays and into a new realm of efficiency. When you're cranking out POs quickly and accurately, you're giving your suppliers the green light to deliver on time, every time. This domino effect is huge - it keeps your production lines humming, your shelves stocked, and your projects sailing smooth. No more nail-biting over missed deadlines or apologizing to customers for delays. Instead, your whole operation runs like clockwork, meeting customer needs with time to spare. And let's face it, in a world where procurement can drag on for weeks or even months, especially for those big, complex orders, every minute saved is golden.

But here's where it gets really exciting - automation. Imagine freeing your team from the drudgery of routine PO tasks. Suddenly, they're not buried in paperwork; they're out there building rock-solid supplier relationships and negotiating deals that'll make your competitors' jaws drop. It's about swapping the mundane for the meaningful. By cutting out the most repetitive tasks, you're not just saving time - you're unleashing your team's potential to drive real value. They can focus on the big-picture stuff that really moves the needle for your business. In short, streamlining your PO process isn't just about dodging delays; it's about catapulting your entire business towards greater efficiency and success.

Brex’s AI-powered spend management platform can transform your purchase order management through automation and real-time visibility. With Brex, you can optimize your purchasing process, reduce costs, and gain better control over your spending.

Some smaller companies and even some larger companies have manual purchase processes in place. However, most businesses today rely on purchase order management software or procurement software to handle everything from purchase order issuance to invoicing. These modern purchase order systems also help track purchase order activity.

Here are some of the benefits of using Brex for PO management.

Empower employees with purchase cards

Brex empowers your employees with purchase cards and other corporate cards, making it faster and easier to make business-critical purchases while staying within budget.

Our cards have built-in controls, allowing you to set spending limits, restrict certain categories, and block specific merchants. These features give you complete visibility and control over your company’s spending.

Streamline approvals and payments

Our platform automates the approval process for purchase requests, saving you time and reducing the risk of human error. With custom approval workflows, you can ensure that every purchase follows your company’s policies.

Brex can also take care of invoice matching and payment, further simplifying your purchase order management.

Brex AI matches invoices to respective purchase orders, ensuring accuracy and eliminating manual data entry. You can schedule payments and track them in real time, providing additional control over cash flows.

Automate bookkeeping with accounting software integrations

Manual purchases and data entry can be tedious and error-prone, especially when it comes to bookkeeping.

Brex integrates with popular accounting software solutions like QuickBooks, NetSuite, and Xero. These integrations minimize manual data entry and automate invoice-purchase order matching, optimizing the entire PO lifecycle and saving your accounting team valuable time.

When you close a purchase order in Brex, our software automatically sends the corresponding invoice data to your accounting software. Once there, the accounting software matches and records the data. This hands-free feature keeps your books up to date and eliminates the risk of errors caused by manual data entry.

Brex also offers automated bill pay, an AI-powered AP solution with enhanced payment capabilities. Onboard vendors with ease, easily capture invoices, flexibly choose your payment method, and route documents to the right approvers.

Track spending in real-time

Through features like the ones we described above, Brex provides real-time visibility into your overall spending. This visibility lets you track every purchase and see where your money goes.

With this real-time information, you can:

1. Identify spending patterns

2. Spot potential savings opportunities

3. Make data-driven decisions that help optimize procurement

Gain valuable insights

Our platform also provides detailed spending analytics and reports, giving you valuable insights into your purchasing behavior.

For example, you can see which departments are spending the most, identify top vendors, and track your spending. These insights help you negotiate better deals with suppliers, optimize inventory levels, and improve your overall purchasing strategy.

Imagine your business running smoother than ever before. Your team, freed from tedious paperwork, now focuses on big-picture strategies. Your finances are crystal clear and under your complete control. This isn't a pipe dream — it's the reality of mastering purchase order management. From minimizing costly errors to supercharging your spend strategy, from boosting product quality to eliminating delays, a refined PO process is your key to success.

Brex is your ally in transforming purchase order management from a necessary task into a powerful engine for growth. Picture real-time spending insights at your fingertips, automated approvals that save hours, and seamless integrations that keep your books pristine. It's not about keeping up. It's about setting the pace and leaving your competition in awe. And the best part? You can start experiencing these benefits today by signing up for Brex.

Don't let another day go by watching opportunities slip through your fingers. Seize control of your purchasing power and propel your business to new heights. With Brex, you're not just managing purchase orders — you're orchestrating a symphony of efficiency, savings, and growth. Ready to conduct? Your baton awaits. Sign up for Brex now and let's turn those purchase orders into profit orders. Show the world what your business can really do when powered by smart, efficient purchase order management.