Purchase Order vs Requisition: Key Differences

What’s a Purchase Order?

A purchase order, also known as PO it’s a formal document you send to a seller that lays out exactly what you need. This includes details like the items, quantities, prices, delivery dates, and payment methods. Once the seller agrees to it, the PO becomes a legally binding contract,

What’s a Purchase Requisition?

If a PO is an external document that you use with your supplier, a purchase requisition is an internal document you use within your own company. Doesn’t make any sense? Let’s put it this way, if someone from your business, needs to buy a product because it’s necessary to do their work, they will need to get approval from a manager, or whoever it’s in charge of purchasing, the way to do this is through a purchase requisition. 

Characteristics of a Purchase Order 

• Clarity: POs are detailed, leaving no room for confusion. Suppliers know exactly what you want.
• Legally binding: When the supplier accepts your PO, it turns into a contract, protecting both of you legally.
• Tracking: POs help you keep track of your orders, ensuring everything arrives on time.
• Payment reference: When you get the invoice, the PO acts as your guide, making sure you’re paying for what you ordered.

Characteristics of a Purchase Requisition 

• Internal document: The most distinctive feature of a purchase requisition, it’s that they are for internal use only, allowing your team to communicate their needs.
• Request for items: They detail exactly what goods or services are required and for what reason. 
• Dependent on approval:  For a purchase requisition to be effective, it has first to be approved. 

‍

Key Differences between PO and Purchase Requisition

Purpose

Purchase order

A PO is the official confirmation for making a purchase. It finalizes your agreement with suppliers. When you issue a PO, you’re telling your supplier that you’re ready to buy the items discussed.

Purchase requisition 

These are used internally within your company when you need something but haven’t established a deal with a supplier yet. They indicate that you need an item and request approval for it. 

Approval 

Purchase order

POs typically don’t require much internal approval. By the time you create a PO, your company has likely already approved. 

Purchase requistion

Now, here’s where you need to go under an internal approval process before moving forward with purchasing.

Legality 

Purchase order

When you send one of these and the supplier accepts it, the terms in the PO become legally binding.

Purchase requisiton

They are more informal and do not carry the same legal weight as a PO.

The Importance of  Purchase Orders

Control

Here’s the thing, purchase orders  provide you with clear control over the procurement process. When you send a PO, you set clear standards for your suppliers regarding what you need and when you need it. Reducing, in consequence, chances of misunderstandings

Accuracy 

And misunderstandings are logically tied to miscommunication, most of the time you’ll find that the reason is mistakes. It could be that you missed a key detail in your order, or that your supplier didn’t understand the right number of items you wanted to buy. A PO, especially one that follows a template and it’s automated, gives you specific guidelines as to what information you must provide. 

Budget management

Perhaps you won’t link the creation of a purchase order with budget management, however, remember that a PO includes the amount of money you are willing to spend in purchasing a product, by having this recorded you can know with certainty how much are you spending. 

‍

The Importance of Purchase Requisitions 

Communication

Believe it or not, purchase requisitions can improve communication within your company. The reason? A purchase requisition clearly expresses the needs of your team, ensuring everyone understands what is required and why.

Useful for audits 

Yes, depending on the audit, it might be required to show proof that every single purchase was approved by the respective management, a purchase requisition is an exact piece of evidence of that. 

Help in planning 

With a clear understanding of what your team needs, purchase requisitions help you plan future purchases more effectively. This foresight allows for better inventory management and resource allocation.

‍

‍

Best Practices for Purchase Orders and Purchase Requisitions. 

While we have learned that there are some specific ways to differentiate between purchase orders and purchase requisitions, there's also some good common sense in the way both procedures are approached. 

Clarity in the process 

See? Common sense

You could be managing a purchase order or getting a purchase requisition, the advice is the same: Keep things clear and simple. The last thing you'll want to do is spend more time than necessary trying to figure out details that should be solved in minutes. 

Approval workflow 

Especially for purchase requisitions, it's  important to establish a predefined approval workflow that considers precise factors like the department, money amount and category of the item. While purchase orders usually don't need any sort of approval,  you'll have to have an equally streamlined communication process.

Use technology 

Whether it's to get a faster approval or to track a purchase order without having to go over all the details manually, having a digital system implemented can really go a long way to help your purchasing activities be more successful.

Communicate and keep communicating.

Remember purchase orders are a point of agreement between your business and the supplier, so you can bet that a lot of information comes and goes. Communicating your expectations and processes from the beginning assures that no misunderstandings will happen in the future. The same goes for purchase requisitions, if everyone in your team is aware of the policies regarding internal requisitions, you can reduce the number of backforths in the communication. 

‍

‍

‍

‍

‍