In today’s digital environment, there’s seemingly a software solution to help manage every type of business function or workflow. Procurement is no exception.
Today, modern purchase order (PO) systems help businesses improve their procurement process, ensure accuracy in orders, and support better operational efficiency overall.
If your business still relies on paper-based purchase orders, you may find that a digital PO system makes it easier to manage the growing volume of orders your business makes as you scale operations.
For more information on what a PO system is, what it does, and how to select and implement the right solution for your business, continue reading below.
What is a purchase order (PO) system?
A purchase order (PO) system is a software solution that enables procurement departments to centralize and manage purchasing activities from start to finish.
While the specific features and capabilities of these solutions will vary between platforms, they generally include:
- Creating purchase orders from approved vendors
- Routing approvals
- Viewing and tracking active purchase orders
- Automating re-orders based on certain criteria
- Generating reports on purchasing activities
- Enforcing procurement policies
- Communicating with vendors
- Managing invoices
The purpose of PO systems is to help streamline procurement processes for more efficient financial operations.
As we’ll explore in further detail below, these systems automate a good portion of administrative work to eliminate bottlenecks, provide better transparency into purchases, and give teams more time to spend on strategic work.
How does a PO system work?
While the technical mechanisms behind a PO system can be complex, the practical use and application of these platforms is quite simple.
In sum, the system will manage the purchase order from end to end. As a reminder, a purchase order is an official document you’re likely already using to make orders from vendors or suppliers. It’s a legally binding contract once the supplier accepts it, which includes the specific items and quantities you need to be fulfilled.
Here’s a typical workflow of how a PO system works to manage a particular order:
- Purchase request: An employee makes a purchase requisition for desired goods or services, including the description, quantity, and preferred supplier.
- Approval: The request is routed to the staff member with approval authority, which they can review and approve or deny based on the company’s policies.
- PO creation and submission: If the request is approved, the system will create a purchase order using the details provided in the requisition, which is then sent to the appropriate supplier.
- Order fulfillment: When the supplier ships the ordered goods, the system will update and provide the procuring company with shipping updates or notifications.
- Goods receipt: When the items are delivered, the customer will verify the quantity and quality of the delivery and update the system to reflect the order status.
- Invoicing: The supplier will send/upload an invoice for the goods or services delivered.
- Three-way matching: The PO system will verify the invoice details against the purchase order and goods receipt to ensure its accuracy.
- Payment processing: If the invoice is verified, the customer will send a payment of the approved amount according to the terms and conditions (i.e., net 30, 60, 90), after which the order is considered closed in the system.
How do you set up a PO process?
If you’re in the market for a PO system or looking to upgrade your current solution, you may be curious about the steps it takes to get a new platform up and running.
To give you a better idea of what the process entails, here is a breakdown of the steps you’ll need to go through, from initial browsing to ongoing system maintenance:
- Assess your needs and requirements: Determine the pain points in your existing purchase order workflow and identify the specific features and capabilities you need a solution to have to help it improve.
- Test potential solutions: Make a shortlist of potential solutions that meet your requirements and use free trials or demos to test them out firsthand.
- Select a system: Based on your experience with various platforms, choose the system that you like best, is easiest to use, and will support more efficient and accurate PO management.
- Customize the purchase order format: During implementation, create custom PO and requisition templates to make it easier for your team to initiate a purchase request.
- Establish approval workflows: Route the appropriate purchase requisition and approval workflows based on your internal policies. The system should be set up to reflect the current workflows your team completes by hand.
- Set user permissions: Determine which team members need to have access to the platform and set up the appropriate user permissions based on their roles and responsibilities.
- Upload/migrate existing data: If you’re already using a PO system, migrate existing data to the new solution, backing up all data beforehand to reduce the risk of operational disruptions. If you’re implementing a PO solution for the first time, upload any current records that may be relevant to purchase orders, such as your approved vendor list, procurement policies, etc.
- Complete necessary training: If needed, use the provider’s available training sessions or resources to ensure all users are caught up to speed on the new system and know how to use its features to their advantage.
- Issue purchase orders: Once implementation is complete, you can issue your first purchase order, and monitor the system closely to ensure it’s behaving as you expect it to. Make adjustments or tweaks as necessary to reflect changes in procurement policies.
Benefits of an automated purchase order system
The process of selecting and implementing a new PO system can be a bit intimidating. However, a growing number of SMBs are finding it’s worth the initial time and effort to enjoy these ongoing benefits:
Improved order accuracy
One of the clear benefits of using an automated PO system is that it helps reduce (or eliminate) the risk of manual data entry errors.
Once an employee enters a requisition into the system, all related data will be automatically transferred to the corresponding purchase order, which is then sent to the vendor.
Thus, orders will only be made of the approved items and quantities, helping teams avoid costly mistakes from accidentally over-ordering a specific good.
Enhanced order tracking
PO systems also provide better visibility into purchasing activities, providing real-time updates from vendors and suppliers on the status of orders.
Without these systems in place, you may need to reach out to vendors directly to request an order status update. When you’re waiting on a critical order, it can be frustrating to wait for the vendor’s response.
Thus, PO systems help to eliminate this back-and-forth communication, ensuring all parties can access information on delivery status, shipping details, and estimated arrival dates at their convenience.
Better supplier relationships
On a similar note, PO systems can support better relationships with vendors and suppliers. It makes it easier for teams to manage PO details in one central location, reducing the risk of misplaced orders or invoices.
Instead, both parties have clear visibility into pending orders, deliveries, and invoices, creating better trust and transparency.
Plus, as we mentioned above, you don’t have to feel like you’re bothering a supplier when requesting a status update on your order. This way, you’ll always have real-time access to tracking information — without needing to ask for it.
Challenges of using a PO system
As we explored above, shopping, comparing, and implementing a PO system can be time-consuming.
Then, once you’ve selected the platform, you’ll need to ensure all relevant stakeholders and team members are fully trained on the system and can use it to efficiently complete their work.
Change is never easy, though helping your team understand why the new system is being implemented and how it will benefit their workloads can make the change easier to accept.
However, the good news is that if you thoroughly evaluate potential solutions and select a plan that suits your needs and budget, you shouldn’t have to repeat the process for a long while.
What is the best PO system? Top features to look for
Each company will need to select the purchase order system that accommodates their specific needs and unique industry challenges.
Thus, there is not a “one-size-fits-all” solution that all small businesses should implement. However, there are some general features and characteristics that SMBs should look for when implementing a PO system, which we’ll explore in further detail below:
Automated Approval Workflows
Securing the necessary approvals for purchase orders can be a frequent bottleneck during procurement.
Thus, a PO system that supports automated approval routing and reminders can help to streamline the process, ensuring the team is able to get the right approvals without sending multiple follow-ups or approval requests on their own.
Easy to Use Interface
Implementing new systems and technologies should help streamline your team’s workflows, not complicate matters.
Any PO system you implement should have a clean design and be easy to use.
Look for platforms with positive user reviews related to usability. If there is a slight learning curve, see if the provider offers any training or onboarding support to help your team get up to speed on the platform.
Customization
No two businesses are exactly alike, so it’s highly recommended to find a PO system that allows you to customize the platform to your unique workflows.
A rigid system that’s hard to customize can make your procurement process clunky and inefficient.
In this case, rather than customizing the solution to fit your workflows, you might end up altering your existing processes to fit the system, which can be counterproductive.
However, a platform that lets you create custom approval workflows, reporting dashboards, user permissions, notifications, and data fields will be much more flexible and easier to tailor to existing operations.
Relevant integrations
Before implementing a solution, check to see if it supports pre-built integrations with the business solutions you already rely on.
If so, it can significantly reduce the need for your team to manually enter or transfer data from one system to another, enabling greater automation and efficiency while reducing the risk of human error from manual data entry.
Some of the specific integrations you might check for include accounting platforms, inventory management systems, enterprise resource management (ERP) tools, and others.
Mobile accessibility
Though mobile accessibility will not be important to all SMBs, it can be highly beneficial for certain industries depending on team preferences and the nature of their work.
If the team doesn’t work in a traditional office setting and needs to submit POs on the go, a system with mobile accessibility can be highly useful.
This way, they can make purchases as needed without sitting down and logging into a desktop computer to do so.
Plus, this can also make it easier for administrators or business leaders to approve orders on their phones in just a few taps, which is another helpful feature to combat procurement bottlenecks.
Automate key financial processes with BILL
Finding a way to optimize the management of purchase orders is just one aspect of a smooth-running accounts payable system.
BILL offers an automated accounts payable platform that helps teams streamline AP workflows from start to finish, minimizing manual invoice entry, automatically routing approvals, and paying vendors by the specific due date.
Sign up for BILL today to see how the platform can help simplify your AP management.
Frequently Asked Questions (FAQs)
What is an electronic purchase order?
As the name suggests, an electronic purchase order is a PO you fill out and submit digitally using a designated solution.
How much is a PO system?
The pricing of a PO system can vary significantly depending on the specific provider you select, as well as the number of users it needs to support and the specific features or modules you require, among other factors. Not all providers will list pricing details publicly, so you may have to contact a representative to receive a custom quote. Regardless of the platform you select, make sure you clearly understand the pricing structure, like whether you’re paying a flat monthly rate, a per-user fee, one-time implementation fees, etc.
