Dec 10, 2020

Purchase requisitions: What are they and how do they differ from purchase orders?

by Dor Beglaubter

If you’re exploring the procurement and purchasing space, you’ve probably come across terms that appear similar, but aren’t the same. For example, procurement and purchasing (which aren’t the same thing). 

Another example is PR and PO. A PR is a purchase requisition, while a PO is a purchase order. While it may seem like these are the same thing, they’re very much not. Here, we’ll explore what they are and how they differ, and why each one is important.

What is a purchase requisition?

A purchase requisition is a formal request by an employee to purchase a good or a service.

A purchase requisition is typically a form that the employee (or a delegate of the employee making the request) fills out. The requisition form contains all of the information needed by approvers to approve or reject the purchase request. This includes a description of the need, the relevant department and budget item, the specific item(s) being requested and any related files/quotes/agreements that approvers should review. 

Once submitted, the purchase requisition is routed to the appropriate approvers. This typically happens through a requisition system. Eventually, the purchase requisition gets approved and turns into a purchase order (PO).

Sample of paper purchase requisition (PR) form

The table below offers a list of the fields one might expect to find on a purchase requisition form, and their descriptions. Some of these fields can be automatically populated by a requisition system, leaving as little as possible for the requester to fill in.

FieldDescription
DateThe date on which the requisition is being submitted
Requested ByThe person submitting the requisition
Requested ForThe person the requisition is being submitted for (the person who will consume the requested goods or services)
TitleThe title of the requisition (ex: 10 Macbook Air 15″ laptops)
DescriptionA description of the good or service being requested, as well as the reason for needing it
SubsidiaryThe subsidiary who will pay should the requisition convert to a PO (ex: Company, Inc.)
DepartmentThe department from which budget should be used if the requisition converts to a PO (ex: IT)
Account codeThe account code of the department listed above (ex: Computers and equipment)
Vendor (not mandatory)The vendor the requester wishes to use. Note that this isn’t mandatory in a requisition system.
Item nameThe name of the item (ex: Macbook Air 15″ – Space grey)
Item QuantityThe number of items requested
Item priceThe cost per item
Item arrival date/service periodThe specific date, date range, or recurring dates in which the item will be received
File attachment (only in a requisition system)Any files associated with the requisition (quotes, contracts, catalogs, etc.)

Why are purchase requisitions so important to the overall procurement process?

The P2P (procure-to-pay) process is one of the two core processes of any business (the second being quote-to-cash), and it begins with the purchase requisition. 

Because the PR is the first step of the P2P process—and, like the popular phrase “good data in, good data out”—the quality of the entire P2P process relies on the quality of the requisition. 

If we examine the other areas of the P2P process, it becomes clear that the PR stage is where:

  • The most stakeholders are involved. This includes requesters, approvers, legal, finance, procurement, Infosec and others.
  • The highest-value decisions happen. To buy, or not to buy? From which vendor? And from which department’s budget should the cost be deducted?
  • Real budget transparency can be achieved. Businesses aiming to optimize their finance management must start with achieving visibility into their spend pipeline. This means knowing what they’re going to spend and where there is wiggle room. This type of visibility can only be achieved at the requisition stage.

Purchase requisitions also provide the business with a complete audit trail of who requested what and who approved it, when, and why. This is a valuable defense mechanism against misconduct and fraud.
“A formalized requisition process improves efficiency and accountability across all points of contact.” Investopedia

Pros and cons of purchase requisitions

Before diving into the pros and cons of purchase requisitions, it’s important to understand that the act of a business buying something always involves a related process. With this, the question that needs to be asked is, “Should this process rely on a simple text or Slack message to the boss saying ‘I’m buying this,’ or should the process be more formal?” 

The choice to embrace purchase requisitions aligns with the choice to treat purchasing as a serious, important process that needs to be properly managed. The pros of purchase requisitions are quite obvious:

  • Better control and visibility into the spend pipeline
  • Elimination of fraud and misconduct
  • Better financial and budget planning capabilities
  • Early involvement by key stakeholders

All of these benefits ultimately result in saving money. 

There are also some elements of purchase requisitions that can be viewed as cons. For starters, deploying any new process can make the organization seem “heavier,” with yet another formal procedure employees need to follow. In general, this can frustrate employees who don’t love change. Research shows that people are generally change averse. With this, deploying a new process—regardless of how valuable it is—can be challenging. 
When it comes to purchase requisitions, the pros far outweigh the cons. If you already have a purchasing process in place that involves emails, phone calls, spreadsheets, or a generic workflow or task management system, your employees are already involved in a process that surrounds purchasing. Purchase requisitions simply make this process faster, more transparent and less frustrating.

Purchase requisition vs. Purchase order

A purchase order is a legally binding document that gets issued to suppliers or vendors once a requisition has been approved. The purchase order is usually referred to as a PO, and is typically generated on the PO module of the company’s ERP or on a P2P suite. 

Beyond its function as a formal document that’s sent to the supplier, the PO is important for budget planning and management, since it acts as a “lock” on budget before an invoice is received from the vendor.

Some businesses run their purchasing approval process on the PO itself, rather than on a purchase requisition. This approach is problematic for a number of reasons, among them:

  • Not all employees, or relevant users, have access to the system that generates POs. This breaks the process into several systems and creates data silos, resulting in friction, errors and processing delays.
  • POs usually require a vendor to get approved. If the requester isn’t sure about which vendor they want to use, this poses a problem. On the other hand, “vendorless” purchase requisitions offer a great opportunity to guide purchases to preferred vendors, increase buying power, and lower the risks and time involved in onboarding new vendors.
  • PO systems usually support rigid and limited approval flows, and are relatively technical and difficult to use. This results in low adoption, which keeps purchasing processes happening in a manual, siloed fashion that isn’t easily tracked or managed. 

How to tell if you need a purchase requisition system

You may be unsure about whether your business really needs to transition to purchase requisitions. Fortunately, there are some clear signs indicating that your organization is in need of a purchase requisition process using a proper, purpose-built solution. These include: 

  • It’s becoming difficult to plan and monitor budgets company-wide
  • Purchase requests and approvals are clogging up employees’ inboxes
  • There is a growing number of stakeholders involved in purchasing and approving
  • Employees are frustrated with the time it takes to get a purchase approved
  • There is a lack of context when approving purchases
  • Legal and security get involved too late in the game, stalling processes
  • Procurement isn’t able to source and negotiate the way they would like, so money-saving opportunities are wasted
  • Finance lacks visibility into the spend pipeline

Purchasing activities at growing businesses involve an increasing number of stakeholders regularly needing to approve an increasing number of goods and services. In order to keep the business running smoothly, they need to be making these approvals fast. 

Deploying a purchase requisition process, especially one that’s founded on a purpose-built requisition system like Approve.com, results in higher and quicker adoption, accelerated approval cycles, more visibility and control over the spend pipeline, and optimized financial management. 

Interested in implementing a spend management system that simplifies and streamlines your business’s existing process? Check out Approve.com and request a free demo today!

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