7 Best Practices of Purchase Order Management in 2023

A purchase order is a buyer-generated document that authorizes a purchase transaction. Once the seller accepts the descriptions, quantities, prices, discounts, payment terms, date of performance or shipment, and other associated terms and conditions laid down in the document, the contract becomes legally binding to both parties. Since it is written proof of what the buyer asked for, it can be compared to what was eventually delivered. In cases where the two do not match, the buyer can take action against the seller using the purchase order as evidence. The finance department can also use purchase orders for budgeting and forecasting.

For businesses that deal with large volumes of purchase orders, management of these documents is of vital importance. Otherwise, there will be chaos in the procurement department, the finance department, and any other team that uses this document for completing its work. In these days of e-procurement and application-based processing, there is much that can be done to control the flow and accuracy of purchase orders. Whether purchase orders are controlled manually or technically, some best practices still need to be followed.

Best Practices of Purchase Order Management

1. Deploy ERP System:

The procurement team should make sure that purchase orders are assigned numbers by an Enterprise Resource Planning (ERP) system. There are many reputed platforms available in the market. These systems can be used to confirm the purchase orders as well as file them.

2. Validate Changes:

Changes to purchase orders are quite common. When the changes are made, the same must be made through change orders as well. These changes must be confirmed, and both the change order and the hard copy of the purchase order must be filed together.

3.Source of PO:

Purchase orders should only come from authorized personnel. Not only does this prevent wrongdoing, but it also eliminates unnecessary purchases and duplications.

4. Create Copies of the PO:

There should always be two or more copies of a purchase order. The buyer needs to keep one, the seller will be sent one, and any other department that needs a copy will need to have one. Alternatively, processed POs can be made available on a digital platform or application within the company to avoid duplication

5. Quality Assurance:

Accurate data entry of purchase orders is required into the system, with negligible errors even if the volume of documents increases. A series of quality checks should be put in place to ensure that all details have been accurately filled in. The shipping details, purchase quantity, price, and whether the goods are taxable or non-taxable are all vital information. The QC person should check these details carefully to make sure that they are accurate.

6. Cancellation Process:

The procurement team has to be very careful when a purchase order is cancelled. Firstly, they should accept cancellation orders only when they are in writing; in these days of e-mail communication, a properly formatted and written e-mail is also considered an acceptable authorization. A hard copy of the cancellation request should be taken for filing along with the original purchase order. In case it is an e-mail, then a printout of the e-mail should be taken. In many companies, there is also a confirmation needed of the cancellation request. This normally comes from the authorized signatory. This should also be filed along with the other documents. Only when all the documents are in place should the purchase order be cancelled.  

7. Maintain Documentation:

The documentation involved in purchase order management has to be maintained for a long time. When audits are performed, the internal or external auditor will ask the concerned department to produce these documents so that he can verify their accuracy. All documents related to a particular order have to be filed together correctly so that the backstory of the trade is clear to all those concerned. Whether the documents are maintained in hard copy, online, or a combination of both, a responsible person should be put in charge of making sure that they are not intentionally or unintentionally misplaced, deleted, destroyed, or altered. Data security is important in this regard.

Purchase order management process is a vital activity that should be entrusted only to responsible and knowledgeable persons. Many companies around the world have benefited by a combination of implementing technology software and selecting a specialist outsourcing partner to execute the activity of data entry and processing of purchase orders. A reliable process should be put in place to ensure that the work is executed in a streamlined manner, leaving little room for errors.