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Purchase order management is an internal business accounting function. Companies use a purchasing process to acquire inventories, operational assets and other items needed to produce goods or services. Purchase orders represent an internal document that gives specific authorization for purchasing different resources. Larger companies usually have a more well-defined purchase order process than smaller businesses. Large companies create purchase order management policies to ensure employees follow standard operating procedures for this process.
Business owners usually designate purchase order authority to certain individuals in the business. Business owners, directors, and executive-level managers often allow operational managers to approve purchase orders for their department. Purchase orders for significant dollar amounts, such as several thousand dollars, are the only purchase orders needing an executive’s authorization. Business owners and executive managers delegate this ability to ensure the company’s business operations can continue without excessive oversight.
Companies may use a purchase order management system that requires a review of several vendors or suppliers. This requirement ensures the company gets the lowest possible cost for economic resources. Manufacturing, production, and construction companies commonly use a bid/proposal purchase order system. A bid/proposal system allows vendors and suppliers to present a company with specific information relating to economic resource purchases. Vendors and suppliers will outline the cost for each item, delivery process available, and time needed to complete all services listed on the bid/proposal. This process alleviates the company from doing copious amounts of footwork relating to economic resource acquisition.
Large businesses often have a purchasing department solely responsible for acquiring resources. This department takes the authorized purchase order and sends it to the vendor or supplier. The purchasing department reviews the availability of goods to ensure the vendor can complete all contractual obligations on the purchase order. Follow-up issues or alterations to the purchase order may be sent to the operational manager for his approval. The purchasing department is simply an intermediary function handling the ordering process in the purchase order management system.
Once the goods or services are received or completed, vendors and suppliers will send the company an invoice to request payment. This begins the final process of the purchase order management system. The invoice is reviewed by the company’s accounting department. In the accounting department, accounts payable is responsible for reviewing purchase order paperwork and issuing payments. Many companies use a three-way match system. Accounts payable clerks will review the internal purchase order against the receiving paperwork and vendor invoices. Companies will only issue payments when all three pieces of paperwork match. Accounting clerks will enter the information into the company’s accounting software, print out a check and have an authorized signer sign in the issue payment to the vendor.