In any business, multiple departments need materials from time to time—from basic office supplies to raw materials, equipment, and services. Purchasing is universal, but how it’s handled makes a difference. When firms enable line managers or departmental managers to place orders with suppliers directly, it can lead to increased expenses and increased cases of expense fraud.
Let’s say the IT department in your firm needs a number of new laptops to replace old ones and equip new employees. What happens next? Does the head of the IT department simply pick the laptops they prefer and make the large purchase on their own? Without protocols in place, they could purchase far more than the department budget can accommodate, or even misuse company funds and buy devices for personal use. This throws a wrench in the business’ budget and can negatively impact its cashflow. At times, staff who are working in good faith can still accidentally violate budget limits or requirements that they did not know about.
This is why many companies have a streamlined purchasing process with well-defined approval workflows. If your business has tightened its spend scrutiny, is dealing with cash flow problems, or is on a strict budget, implementing an effective purchasing process can help cut down on unnecessary expenses and reduce spending. This process starts with a document called a purchase requisition form.
What is a purchase requisition form?
A purchase requisition form is an internal document used by an employee to purchase goods or services on behalf of their firm. These purchases may be for business operations (such as office supplies), inventory, or manufacturing inputs.
The purchase requisition form is submitted to the purchase department for approval which is the first step in creating an effective audit trail for purchasing. Once the purchase requisition is approved by the relevant department, a purchase order is issued to the vendor of the requested goods or services.
Contents of a purchase requisition form
Purchase requisition forms generally require the following information:
- Name and department of the requestor
- The date of request
- The products or services requested
- Item description, quantity, and price
- Reason for purchase
- Legal name of the supplier
Steps involved in the purchase requisition workflow
The steps in a purchase requisition workflow may vary from one company to another. However, the basic outline of the process remains the same:
Submission of purchase requisition form
An employee recognizes the need for goods or services, and requests the purchase of the items. To do this, they issue and fill out a purchase requisition form with the details of the desired purchase. In some firms, they request manual filing of the form while in others, this process is carried out using spend management software.
Approval from the line manager
The purchase requisition form is then subjected to an internal approval process, where it is verified by the line manager of the requestor’s department. The line manager’s duty is to check the legitimacy of the purchase and also ensure that the value of the purchase does not exceed the department’s allotted spending limit.
Stocktaking by inventory department
From here, the requisition form is routed to the inventory department, which checks it against the company’s existing stock. If the requested materials are not already in stock, they forward the request to the purchasing department.
Screening by purchasing department
In the purchasing department, the request is processed by the appropriate officer (in most cases, it’s the purchasing manager). To process this form, the officer identifies the business need for the products/services, checks the legitimacy of the purchase, and confirms that the requisition is duly signed and authorized. If the form is missing vital details, the officer may either fill them in or send the form back to the requestor for completion. If the request appears inappropriate or exceeds the applicable purchasing limits, the purchase requisition form is rejected and sent back to the requestor with comments justifying the rejection.
Generating a purchase order
If the purchase requisition form receives all of its needed approvals, a purchase order is generated and sent to the vendor. Once it is accepted, by the vendor the purchase becomes a legally binding contract.
Order delivery and assessment
When the products or services are delivered by the vendor, the receiving department checks the order for quality and quantity. A three-way matching process checks the purchase order, order receipt/packaging slip, and invoice to confirm the accuracy of the order. This ensures that the finance or accounting team is paying only for the items that they have ordered and received, and not anything extra. If any returns are required, they are processed by the warehouse or receiving team.
Invoice payment
Once the documentation requirements are met, the purchase order is closed. Then the invoice from the vendor is approved by the finance team, entered into the accounts payable, and paid according to the payment terms and conditions.
Why should you enforce purchase requisition in your procurement process?
Here are a few benefits of using purchase requisition forms in your procurement process:
Makes the procurement process transparent
You can see how the steps involved in the purchase requisition workflow add levels of hierarchical approval and make sure the document is checked for accuracy and legitimacy. This workflow produces evidence that a form was issued and submitted by a department, and that the department that requested the supplies actually had a business purpose for them. In most companies, the purchase requisition form includes the applicable budget and purchase limits to inform the requestor before a purchase is made. This ensures that products and services are purchased with the consent of the line manager, and that sufficient funds are available for the purchase.
Streamlines the purchasing process
When a company centralizes its purchasing process and gets its employees on board, it results in a well-defined and easy-to-manage workflow. The process makes it easier to organize and identify incoming products and services, and simplifies inventory management as well. In the end, a centralized purchase system accelerates the purchasing process and reduces delays by individual departments, which can otherwise interfere with efficiency.
Helps prevent fraud
The absence of well-defined protocols leaves room for employees to engage in fraudulent acts like ordering materials for personal use, or arranging with vendors to steal from the firm. Purchase requisition puts an end to this by deterring fraud before it starts and ensuring that staff don’t order goods directly from vendors without a formal process.
Helps avoid duplicate orders
Large companies generally have an entire team to handle purchasing, instead of just one employee. Purchase requisition forms help the purchasing department keep track of what’s been requested and avoid accidentally making multiple purchases for the same order.
Increases accountability and business security
A purchase requisition form is proof that certain materials were needed by a department and that they were ordered. Once the materials have been received and matched with the requisition, there is also a document trail to show that they were delivered. This record can be used as backup evidence in case of any later issues regarding the items ordered or the negotiated price.
Increases cost savings
By establishing a single platform to manage purchase requests, your firm can save money and time. Aggregating your purchase allows you to see exactly how much you’re buying, which puts you in a better position to negotiate with your vendors for preferred pricing.
Can be used as proof during audits
Purchase requisition forms play a crucial role in audit, since most audits ask to see approval from managers as evidence for the company’s purchasing decisions. Purchase requisition forms are perfect evidence since they contain all of the details of the requestor, the approver(s), the time of approval, and the materials that were approved.
Here’s your takeaway!
While the purchase requisition form may seem like just another form to fill out, it plays an important role in your company’s procurement process. It provides internal control over the purchasing process, prevents fraud, creates an audit trail, and helps to make the purchasing process streamlined and transparent.
