The Complete explanation of purchase order automation
It might sound obvious, but there’s more that goes into purchase order automation than you might think.
Table of Contents
- Purchase order automation allows you to easily raise purchase orders in-app, and send them to the relevant people for approval
- Finance teams use purchase order software to achieve this automation, and streamline their processes
- Purchase order automation improves the procurement process while saving time and money
- Purchase order automation is one element of accounts payable automation
- There are lots of benefits, like visibility of spend and tight approvals
When people talk about purchase order automation, what they’re referring to is using software to digitise purchase orders and automate the purchase order process to reduce manual steps.
This involves automatically sending purchase requisitions out for approval, automating approval workflows, then once approved, automatically sending the PO to the relevant supplier.
Most people choose to use this software because it replaces the need for traditional paper purchase orders and tracking purchase orders using excel. It streamlines the whole process and greatly improves purchase order management.
Handling orders manually is time-consuming and error-prone and can create a whole host of problems within your organisation. We’ve all experienced it from time to time, where paper goes missing, duplicate orders get processed, and approvals take too long.
The purpose of purchase order automation is to solve these problems by reducing the amount of time and labour required.
Automating the purchase order process also makes things easier for suppliers. When they get the automated PO, suppliers can quickly convert that to an accurate invoice. This makes it easier for your accounts payable department to manage the payments.
How to implement purchase order automation?
Automating the purchasing process will involve implementing purchase order software and moving your processes away from traditional paper methods. Then, you’ll set up automation for all of your existing processes and start to save time.
The steps to go from a manual to an automated purchase order process look like this:
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Identify a suitable software
Consider your requirements and research the best software to meet your current and future needs. Zahara is flexible and customisable software built to scale with you. It can automate the purchase order process but also covers the full Procure-to-Pay process, from PO to payment.
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Integrate with financial systems
The first step is integrating your accounting system with the purchase order software to ensure all the required information is available. The software provider should offer support to ensure you get up and running quickly with the required data for your custom needs. Your data will now effortlessly flow between them.
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Set up approval workflows
Every business has different needs and a different route for its approval process. You’ll want to set up different approvers for different scenarios, such as the price of your order or a backup approver in case your designated person is off sick.
Different approval workflows may be needed for different departments as well as at different monetary thresholds.
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Implement automation
Once the information you need is in the system and approval flows are set up, it’s time to automate purchase orders. Your purchase order software will enable your team to set up an automated flow where users can create a requisition, route it to the required approvers, turn it into a PO, and then email it to their preferred supplier.
Ideally, this can be done from anywhere at any time over a cloud-based app, giving you more flexibility and faster approval times.
What are the main benefits of purchase order automation?
Moving from manual processes or outdated systems to purchase order automation comes with multiple benefits.
While large businesses, due to their large scale, clearly benefit from making this switch, even small businesses will eventually outgrow the old way of processing purchase orders and benefits.
Purchase order automation software can add additional protection for your business through automated three-way matching.
This process helps to automate accounts payable by automatically checking POs, invoices, and receipts/packing slips to ensure you’re only receiving ordered items and only paying for the goods and services received.
If there’s a mistake where goods and services were not received—or the wrong product was shipped—the issue is quickly spotted so the AP team doesn’t blindly pay invoices or leave invoices sitting too long.
The main benefits include:
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Reduced room for human error
Purchase orders are binding legal contracts between a buyer and a seller. They must indicate the types, quantities, and agreed-upon pricing for products and services. Internally, they are used to control purchasing and monitor departmental budgets and overall cash flow.
Mistakes on the PO lead to back and forth between the vendor and the buyer to get things right. This leaves organizations spending more money than intended, tying up cash with incorrect orders, or even slowing down production.
Manual purchase order management creates a higher potential for errors, which then must be tracked down and addressed.
Errors include incorrect supplier names and codes, lack of authorisation, illegible handwriting, and failure to complete all required information.
Purchase order automation systems can send an alert if information like supplier codes or names is missing and automate approval workflows to ensure proper authorisation. This minimises the chance of human error.
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Improved Procurement Process
An automated purchase order system enables team members to set user permissions for approval routing, data entry for each supplier (uploading contracts, adding products and services to the catalog, payment terms, etc.), and more. Once setup is complete, it becomes easy to streamline the procurement process.
Business rules and approval templates can be set up to streamline the purchase order process. These rules can enforce who can:
- Submit purchase requests for their department
- Approve requisitions and convert them to purchase orders
- See and process invoices
- Make budget changes
They can also set which requisitions need approval and by whom. An audit trail captures all of this in case it’s needed for review.
For example, you can set a rule that automatically approves any purchase under $50. For higher-value purchases, you can set approvers for each department and send them automatic alerts when there is an approval requisition. Once approved, the purchase automatically becomes a PO and gets emailed to the supplier.
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Automation saves time and money
Paper or Excel-based purchase order processing is time-consuming and has higher labour costs than automated purchase order processing.
With an automation solution, all the information needed to place an order is ready to go, automated approval flows are in place, and requisitions can quickly turn into POs.
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Greater visibility of spend
Reporting features provide visibility into each department’s spending. This visibility enables you to secure better deals with your existing vendors and helps you figure out if you should find new vendors to work with.
Measure supplier performance and get a better pulse on the entire supply chain. Purchase order software also enables you to search through all documents in the system and view the status of orders, invoices, and payments at any time, providing complete visibility over your procurement process.
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Flexible workflows
Purchasing automation software allows you to configure the system to meet your needs, whatever they may be. You can restrict purchasing to certain dollar thresholds, suppliers, or specific items. You can also create blanket POs and automatically route them for approval.
The software will be flexible enough to meet your needs even for unique purchasing situations.
So, have we convinced you to upgrade your purchase order management? Get in touch with our specialists to find out the gains you can make by implementing purchase order automation into your AP process.
