Procurement is a very significant aspect of any organization. To fulfill the requirements of each department, there must be a purchasing process
in place. After all, an office needs a million things, including raw materials, stationery supplies, gadgets, and lots more.
Most companies do not allow employees to create purchase orders directly. This is where purchase requisitions come in. To prevent high expenses, confusion, and fraud, companies require managers to submit requisitions before finalizing an order.
Any company purchase, be it a coffee machine for the break room or a laptop for a new hire, has to be approved by the concerned department. If that is not done, employees might go overboard or buy additional stuff, thereby affecting the organization’s budget.
Purchase requisitions basically prevent this from happening, by keeping a check on expenses and handling the procurement process from a central control point. This is why approval workflows are important in a company.
What is Purchase Requisition?
As the name suggests, a purchase requisition is merely a document or process that initiates any procurement workflow
. Through it, employees can request the purchase of a product or service in a professional capacity. It is generally carried out through a requisition form.
Filling out a purchase requisition form and providing all details doesn’t guarantee that the product has been bought. It just asks for permission from the concerned authorities to allocate the said sum for your requirement.
Each company has its own approval workflow. Your requisition request goes to the employees in that workflow, and once it is approved, you have to either create a purchase order, or the process is completed, depending on the organization’s rules.
Why do you need purchase requisition?
There are many reasons a company needs purchase requisitions. Apart from obvious factors like setting up an approval workflow
and making sure the spending is recorded in the company budget, there are other benefits to having an efficient procurement process.
- It allows departments to plan purchases beforehand.
- It helps in setting yearly or quarterly budgets.
- It provides spending proofs, as part of tax documents or to show during financial audits.
- It helps to deal with budget issues or cash flow problems if any.
- It helps to maintain a strict company budget.
- It cuts down overspending and prevents unnecessary expenditure.
- It allows the company to maintain a centralized approval point for all spend.
- It increases transparency in spending and also prevents fraud.
- It ensures no duplicate orders are placed.
- It streamlines the purchasing process and helps maintain accounts with vendors.
In addition to the above, purchase requisition also increases overall business accountability. This is done by ensuring there is a paper trail for all purchases, which can be referred to later, in case of conflicts.
How does purchase requisition work?
A purchase requisition is a company’s internal document that marks the beginning of the procurement process
. When the employee seeks permission to purchase a product or service, they have to fill out the requisition form.
After the requisition is approved by the relevant department, the company issues a purchase order to the vendor. But before that, you need to fill out certain details while filling in the form. The details can be:
- Name or description of the product
- Quantity required
- Price of the purchase
- Employee details of the requestor
- Suggested vendor for the product
Note that the requisition form is merely a permission document and often does not have any attached legality. It is simply used for internal records or audit trails.
In some cases, companies set a price limit for requisitions. If your purchase is below a certain amount, you would not need to apply for a purchase requisition and would be able to create a purchase order directly. Whereas if your purchase exceeds the price limit, requisition would become mandatory.
Purchase Requisition Flow
Like any other efficient workflow, the requisition process starts with a requirement. First, you would recognize the need to procure something for the business or yourself. It can be anything, from a new laptop to new equipment for the manufacturing department.
After noting the requirement, there are a few steps in the workflow.
So that was our take on e-purchasing. Hope you found it informative.
Submitting the requisition form
As mentioned earlier, you (as the employee) would need to fill out and submit a requisition form for the required products. The form will contain relevant details about the product, requestor, and vendor. Depending on the company, this step can be manual or automated.
Getting it approved by the manager
The requisition form has to be internally verified and approved by the line manager or higher authorities. In this step, the approver has to check the request’s validity, legitimacy, and other details. They also have to check if it can be accommodated in the company’s budget.
Checking for inventory stock
Before approving a fresh order, the inventory department must check whether the required material is already available in the company’s stock. In case a new purchase is required, they would approve the requisition and forward it to the procurement section.
Verification by the purchasing department
When the request reaches the purchasing department, it is processed by the purchasing manager or a similar authority. In this step, the business requirement is checked, followed by the validation of the form details.
In case the form is missing some information, the purchasing manager fills it or sends it back to the requestor for correction. If the purchase is rejected, the employee is notified of the same, with a reason for rejection. In case all details are verified and accepted, a purchase order is created.
Creating a purchase order
After all the approvals go through, the purchasing department now generates a purchase order
and sends it to the vendor. From there, the vendor takes over the processing. If the order is accepted, the document becomes legally binding between the company and the vendor.
Delivering and assessing the purchase
delivers the product or service, which is then assessed for quality by the receiving department. Every company has its own assessment process. Generally, the delivery is checked for quantity and invoice.
The finance team makes sure they are paying the right amount to the right person or organization. If the product is unsatisfactory or defective, the receiving team initiates the return process.
Settling the invoice
After successful delivery, the purchase order is closed if the product or service is approved. Then, the vendor’s invoice has to be settled by the finance team. They enter the details into the payment system and complete the payment according to the contract’s terms and conditions.
This is how a successful requisition process is completed and closed.
There are many advantages of having a standard purchase requisition
process in a company. At first glance, it might seem like a tedious formality. But it helps in controlling expenses, preventing malpractices, and establishing an authorization process for business procurements.