Purchase requisitions can be used to save money, protect your company from fraud and help support a robust purchasing workflow. In this blog post, you’ll learn the ins and outs of this document and why it's so important to the financial health of a business.
What is a purchase requisition?
A purchase requisition is an internal document used by an employee to request the purchase of goods and services on behalf of their company. Everything from business supplies to hiring a specific service can fall under the purview of this document. A purchase requisition is the first step an employee would take to get the purchase approvals process started. The document may look different from company to company due to varying protocols per workflow, but the purpose is almost always the same—to document the workflow for purchasing approvals.
What is an example of purchase requisition?
As a basic example, let’s say an employee wants to hire a consultant for their department. Before they can hire someone, they need confirmation from an overseeing team member that the need is valid and that there is available budget to go forward.
To get started, the employee prepares a purchase requisition form. The employee provides information such as a description of the service needed and the reasoning behind it, the name of the consultant and the business they work for (if applicable), the price and target hire date. The form is submitted for approval.
If the purchase requisition is approved, the employee can move forward with hiring the consultant. At that point, the purchase requisition is complete, and the next steps in the acquisition process can begin.
By completing a purchase requisition form, the business now has a paper trail that validates the expenses incurred to hire the consultant along with proof of company expenses.
Why is a purchase requisition important?
It might seem like a tedious step in the purchasing process, but a purchase requisition is one of the best measures a business can implement to avoid unnecessary obstacles with budgeting or auditing down the road. Regardless of your business’s structure, there are a few reasons that a purchase requisition can help you better track expenses:
A purchase requisition initiates the purchasing process
It’s essential for any company to track expenses. Requiring a purchase requisition before any purchase is made ensures complete visibility to approval personnel so that only necessary costs are incurred. A purchase requisition kicks off a streamlined purchasing process that cuts down on unnecessary spending and duplicate orders. It all starts with a simple request to get things moving and having this measure in place keeps a uniform approach to it every time.
It’s an an effective control tool
Documenting expenses helps prevent accidental overspending. For example, because not every employee may know their department’s budget limits, having a purchase requisition in place ensures nothing extraneous is put on the company bill. And using a purchase requisition as an awareness tool isn't just a preventative measure. A financial team may use purchase requisition records to see where spending could be improved and help them decide whether they should be allocating money to different resources.
A purchase requisition protects the organization from fraud
A purchase requisition is one of the best measures for avoiding fraud within a company. Companies can avoid this dreaded scenario–whether from internal or external sources–with a clearly established order of events and a paper trail to track expenses. Purchase requisitions ensure that sellers aren’t sending you incorrect orders or overcharging you while also ensuring that employees aren’t trying to make unauthorized purchases without approvals.
What is the difference between a purchase requisition and a purchase order?
A purchase requisition is the form used to ask for permission and approval when seeking to purchase goods or services. Once the approval has been given, a purchase order is made to kickstart the purchase. The purchase order is a legally binding document and contains many of the same pieces of information as a purchase requisition form.
A purchase requisition is a great way for a business to keep track of budgets and plan spending efficiently. It may seem simple, but this document is a beneficial tool for any business, providing protection against internal and external influences. Consider a purchase requisition as due diligence for any endeavor a company might undertake, as those efforts almost always require capital to finance them.
For businesses sending hundreds or thousands of payments a month, the process can be exhausting—from getting a supervisor’s approval to validating a payment and tracking its progress.
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We started Routable based on our experience scaling B2B payments with the mission to give companies visibility into their financial data and reduce their time spent chasing payments—and we’re constantly working on ways to make it better.