Purchase order management is crucial yet intricate for most businesses. Inefficient processes can lead to costly errors, late payments, and damaged supplier relationships. The best way to avoid these issues is with an organized, efficient system.
In this Rillion guide, we explain how purchase order management works, alongside best practices your account payable (AP) team can apply to make the process work like a charm.
What is Purchase Order Management?
Purchase order (PO) management is the process of creating, approving, and tracking purchase orders to streamline procurement and ensure accurate record-keeping. Proper PO management is central to an effective accounts payable (AP) function, as it allows you to control spending, meet supplier terms, and ensure timely, accurate delivery of goods and services.
An efficient purchase order management system brings significant benefits to a business, including:
- Improved Cash Flow: Well-managed PO processes ensure timely payment cycles, which improves overall cash flow management for the organization.
- Cost Control: By managing and approving POs, companies can avoid overspending, monitor budgets, and better forecast costs.
- Fewer Errors: Standardized workflows and automation reduce manual errors in PO creation, matching, and approval, leading to more accurate financial records and fewer delays in processing.
- Stronger Relationships: Effective tracking and timely payment improve supplier trust and may lead to better terms and services.
- Papertrail for Financial Audits: A well-organized PO system offers a detailed record of each transaction, creating a transparent audit trail for checks and regulatory compliance.
How Purchase Order Management Works
1. Prepare and Send a Purchase Order
Every purchase order management process starts with preparing and sending the PO. This initial step sets the foundation for efficient procurement and involves:
- Identifying Procurement Needs: The team determines which items or services are required, quantities, and any special instructions.
- Creating the Purchase Order: The PO includes all essential details like item descriptions, quantities, prices, delivery dates, and terms.
- Reviewing for Accuracy: A quick review ensures all information is correct, minimizing the risk of errors.
- Sending to the Supplier: Once finalized, the PO is sent to the supplier, typically through an automated system, to keep things fast and consistent.
When done efficiently, this step gives both buyer and supplier a clear understanding of expectations.
2. Monitor Order Status and Delivery
Once the PO is sent, monitoring its status and tracking the order becomes important. This step helps maintain visibility over each order’s progress and often includes:
- Receiving Supplier Confirmation: After the PO is accepted, suppliers provide confirmation, and any updates on stock or delivery times are recorded.
- Real-Time Tracking: Using tracking software, teams monitor the order’s status at each stage to ensure timely fulfillment.
- Addressing Issues Quickly: In cases of delays, shortages, or unexpected changes, the AP team can communicate promptly with the supplier to prevent interruptions.
By proactively monitoring orders, AP teams can avoid disruptions, keep stakeholders informed, and maintain reliable supplier relationships.
3. Match Invoice and Process Payments
This crucial step involves matching the supplier’s invoice to the PO and delivery receipt. The typical invoice matching process includes:
- Three-Way Matching: The team verifies that the quantities, prices, and terms on the PO, delivery note, and invoice align.
- Resolving Discrepancies: Address any differences with the supplier, which could involve negotiating discounts or arranging replacements if items are missing or incorrect.
- Approving and Processing Payment: Once confirmed, the authorized stakeholder, usually the manager, approves the payment. The invoice is then processed according to the company’s payment terms.
Matching documents not only ensures accuracy but also minimizes overpayments and improves budget tracking, which is crucial for financial control.
4. Track and Record Purchase Order Records
After completing the transaction, storing all related documents for future reference is important. These records provide an audit trail, helping ensure that all steps meet compliance and regulatory standards. They also empower the AP team to verify terms and resolve disputes adequately.
5. Analyze Data for Continuous Improvement
A strong purchase order management process doesn’t end at record-keeping. You also need to analyze past data to refine future operations. For example, reviewing key supplier performance metrics like delivery times, accuracy rates, and responsiveness can help identify reliable suppliers.
Rillion for Automated and Efficient Purchase Order Management
The traditional purchase order (PO) management process is often time-consuming, prone to errors, and difficult to track. AP teams can avoid this by automating the entire process. Here’s how PO automation works with Rillion:
Automated Purchase Order Creation and Approval
Rillion’s purchase-to-pay (P2P) platform allows you to digitally create and submit POs with standardized templates, reducing errors in data entry. An automated approval workflow then routes the PO to the appropriate managers, using pre-set rules to simplify and speed up approval cycles.
For example, Peab, a leading NASDAQ-listed international construction and civil engineering company, used Rillion’s digital approval workflows to gain full control over its 50,000 annual invoices. They know where the invoices are, who is to approve them, and when they fall due for payment.
Touchless Invoice Capturing and 3-way Matching
AP teams can automate invoice capture and PO matching to minimize the risk of overpayments and delayed payments.
Our Invoice Capture solution with OCR invoice processing, invoice scanning, and data capture handles both email and paper invoices in any format: PDF, EDI, XML, Word, Excel, JPG, TIFF, XML, CSV, and more.
This, combined with a three-way matching system, automatically verifies quantities, prices, and terms across POs, receipts, and invoices, flagging any discrepancies for review.
This “touchless” capturing and matching process, as used by Perryman, dramatically reduced manual intervention and improved data accuracy (up to 95%) for over 25,000 invoices annually. This allows their AP team to focus on higher-value tasks.
Centralized Document Storage
Our platform offers a fully searchable, time-stamped archive of all your vendor invoices with full visibility into approvals and internal messages. This helps to address issues like delivery delays or order changes proactively. It also supports compliance and offers a clear audit trail.
For example, Tacala, a major franchise operator in Texas, uses Rillion’s Audit Trail function to keep time-stamped invoice logs with all the information necessary to satisfy external auditors and internal investigations.
Reporting and Analytics
Through real-time analytics and reporting, our platform enables you to optimize payment times, analyze spending, and forecast cash flow.
You get up to 16 business-focused reports, allowing your finance team to access insights to make data-driven decisions, negotiate better terms, and improve overall procurement efficiency.
Seamless ERP Integration
Rillon integrates easily with popular ERP systems like NetSuite, Microsoft Dynamics F&O, and SAP, ensuring smooth data flow between platforms.
Purchase Order Management Best Practices
Here are a few best practices to maximize your purchase order management process:
- Define Your PO Process: The purchase order process differs across companies. Define a standardized PO process with clear guidelines on who creates POs, approval levels, and handling for exceptions or urgent orders.
- Collaborate with Internal Stakeholders: Work with finance, procurement, and operations teams to clarify roles, reducing delays and misunderstandings.
- Know Your Suppliers: Keep a supplier database with key information like contact details, pricing agreements, delivery terms, and performance metrics. This allows you to review vendor relationships for alignment with organizational goals.
- Measure and Review Performance: Regularly evaluate metrics such as cycle time and error rates to refine processes. Reviewing performance helps optimize spending and aligns procurement with organizational goals.
- Train Staff on Best Practices: Regular training on PO software and tasks keeps workflows efficient and reduces errors.
Conclusion
Effective purchase order management is essential for streamlined, cost-efficient procurement. By following best practices and using automation, businesses can improve accuracy, control spending, and strengthen supplier relationships.
Rillion offers the tools needed to automate your invoice matching and PO process. Book a free demo today to see how our platform can transform your purchase order management today.
