What is a Purchase Requisition?
A purchase requisition is an internal document submitted by an employee or department when a need for goods or services arises. It acts as a formal request to initiate the purchasing process. Rather than buying the item directly, the requester seeks approval from designated authorities within the organization, such as department heads, the finance team, or procurement managers.
This step ensures that purchases are controlled, budgeted, and strategically aligned with the company’s objectives. Essentially, it acts as a safeguard to prevent unauthorized expenditures.
Purpose of the Purchase Requisition Process
The function of a purchase requisition within an organization is centered around control and structure. Businesses often operate with numerous departments, each with its own set of requirements. Without a streamlined method for validating purchases, costs can spiral out of control. The requisition process creates a necessary checkpoint.
Some of the key reasons for using this process include:
- Preventing unapproved purchases that can affect budgets.
- Improving transparency by documenting what is being requested and why.
- Streamlining communications between departments and procurement teams.
- Enabling audits and reporting by creating a record of all requested purchases.
By requiring documentation before a purchase takes place, companies gain the ability to track, evaluate, and prioritize spending across teams.
Who Uses Purchase Requisitions?
The purchase requisition form is commonly used by employees who identify a need for goods or services. For instance, if a marketing team requires printed materials for a campaign or if an IT department needs new hardware, the designated employee fills out a requisition form and sends it to the relevant authority for approval.
Once approved, the request moves forward in the procurement cycle. If not approved, it may be revised or rejected entirely.
Key Components of a Purchase Requisition
To maintain consistency and clarity across departments, most requisition forms contain standardized elements. These include:
- Name and department of the requester
- Date of the request
- Description of the product or service required
- Quantity and estimated cost
- Justification or reason for the purchase
- Suggested vendor or supplier (if known)
- Signature or digital authorization from the relevant authority
The goal of these components is to collect all the necessary data to make an informed purchasing decision.
Types of Purchase Requisitions
Different purchasing needs call for different types of requisitions. Companies usually categorize requisitions based on urgency, predictability, or frequency. The most common types are:
Standard Purchase Requisition
Used for routine and predictable purchases, a standard requisition follows the organization’s usual approval path. These are typically used when the requester knows what they need, including supplier information and approximate cost.
Planned Purchase Requisition
Planned requisitions are based on forecasting. These are raised in advance for recurring needs and help teams prepare for future demand. For instance, departments may anticipate needing paper supplies every month and raise planned requisitions accordingly.
Emergency Purchase Requisition
In cases where an urgent purchase is required, such as an equipment failure or critical material shortage, an emergency requisition may be submitted. These bypass some normal approval steps to enable rapid action while still documenting the request.
How the Purchase Requisition Process Works
To understand the internal procurement cycle, consider the sequence of events in a standard requisition:
Step 1: Identifying the Need
An employee identifies the requirement for a good or service. This could stem from a new project, a maintenance issue, or a restocking need.
Step 2: Preparing the Requisition Form
The requester fills out the requisition form with all necessary details, including estimated cost and justification. The more complete the form, the quicker the approval process.
Step 3: Submitting for Approval
The requisition is routed to the designated approvers, who may include department managers, finance officers, or the procurement team.
Step 4: Review and Approval
Approvers evaluate whether the purchase aligns with budget, policy, and company priorities. If approved, the document is forwarded to procurement. If not, feedback is provided to the requester.
Step 5: Initiating the Purchase Order
Upon approval, the requisition becomes the foundation for creating a purchase order. At this stage, procurement contacts suppliers to finalize pricing and delivery.
Importance of Purchase Requisition in Budget Control
An effective requisition system gives companies the ability to monitor spending before a financial commitment is made. This is crucial for small businesses, nonprofits, and large corporations alike. It enables finance departments to evaluate requests against the current budget and prevent overspending or redundancy in procurement.
Moreover, organizations can avoid purchasing duplicate items or services. With clear documentation of needs and past purchases, overlapping requests are easily spotted, reducing unnecessary expenses.
Real-World Example of a Purchase Requisition in Action
Consider a manufacturing firm where the production manager identifies a shortage of packaging materials. Instead of directly placing an order, the manager fills out a requisition form detailing the required quantities, vendor preferences, and urgency.
The request is sent to the procurement team and the finance department. They check the available budget and validate the need. After approval, the procurement team creates a purchase order based on the requisition, initiating contact with the supplier.
In this example, the requisition played a pivotal role in validating the necessity of the purchase and securing proper authorization.
How Requisitions Fit Into Procurement Software
As businesses move toward automation and digital transformation, manual paperwork is increasingly replaced with procurement management tools. These platforms allow employees to submit, approve, and track requisitions electronically. Automated approval chains, notification systems, and digital records drastically reduce processing time and human error.
Moreover, having a digital trail improves compliance and auditing capabilities. Procurement software can be integrated with finance and inventory management tools to create an end-to-end solution for supply chain control.
The First Step Toward Smarter Procurement
Purchase requisitions serve as the critical entry point for the procurement workflow. By ensuring that all purchase requests undergo scrutiny and align with budgetary constraints, businesses build a structured approach to managing operational expenses. The internal approval mechanisms built into requisition workflows support informed decision-making, transparency, and cost control.
What is a Purchase Order?
A purchase order is a formal document issued by a buyer to a seller, confirming an order for specific goods or services. It outlines detailed information such as item descriptions, quantities, agreed prices, delivery dates, payment terms, and supplier information.
Once accepted by the vendor, a PO becomes a contractual agreement that obligates the supplier to deliver the items or services as outlined, and the buyer to pay under the stated terms.
Purpose of a Purchase Order in Business Operations
A well-structured purchase order system brings predictability, clarity, and legal accountability to procurement. It helps both parties stay on the same page regarding the scope and expectations of the purchase.
Key purposes of using purchase orders include:
- Establishing clear terms of purchase
- Preventing unauthorized spending
- Providing audit-ready documentation
- Enhancing vendor accountability
- Tracking the purchasing lifecycle
From large-scale manufacturers to digital service providers, businesses across industries rely on POs to formalize procurement and streamline operations.
Essential Elements of a Purchase Order
Every purchase order contains several standardized fields, regardless of the company’s size or industry. These elements ensure transparency and allow easy matching with invoices and delivery receipts.
Typical components include:
- PO Number (for tracking and referencing)
- Buyer and supplier details
- Item descriptions (name, SKU, category)
- Quantity and unit of measure
- Agreed-upon pricing
- Delivery address and date
- Payment terms (Net 30, Net 60, etc.)
- Purchase terms and conditions
Including comprehensive details upfront avoids disputes and reduces the need for back-and-forth clarifications later in the process.
Types of Purchase Orders
Different purchase scenarios require different types of POs. Businesses often classify them to align better with their operations and supplier relationships.
Standard Purchase Order
This is the most common type, issued for one-time purchases where the specifics—quantity, price, and delivery schedule—are all known. For example, buying 100 office chairs from a specific vendor at an agreed price.
Blanket Purchase Order
Used for recurring purchases over a period, a blanket PO allows multiple deliveries and invoices without creating a new PO each time. It’s common for long-term relationships with trusted vendors.
Planned Purchase Order
A planned PO outlines what will be ordered, but not necessarily when. Delivery dates may remain flexible. This is useful for companies that need inventory regularly but want the freedom to schedule delivery later.
Contract Purchase Order
This is the most formal type and is linked to a legal contract with a supplier. It sets overarching terms but doesn’t specify items. Standard or blanket POs may be issued later under this master agreement.
The Purchase Order Process Workflow
A typical PO workflow begins after a purchase requisition is approved. The procurement team creates a PO and sends it to the selected supplier. Once the supplier accepts the PO, the order is considered confirmed. The process includes the following steps:
Step 1: Create the Purchase Order
After requisition approval, the buyer uses procurement software or templates to generate a PO. This includes all the order details and references the original requisition if applicable.
Step 2: Review and Approval
Internal approval may be needed again for compliance. For example, a finance manager may need to sign off if the PO value exceeds a certain threshold.
Step 3: Send PO to Supplier
The PO is transmitted to the vendor via email, procurement platform, or integrated EDI system. This serves as the formal offer to purchase.
Step 4: Supplier Acknowledgement
The vendor reviews the PO and either accepts, rejects, or requests changes. Once accepted, the PO becomes a legally binding contract.
Step 5: Goods Delivery and Verification
The supplier delivers the goods or services, and the receiving department verifies that everything matches the PO specifications.
Step 6: Invoice Matching and Payment
The supplier sends an invoice. The accounts payable team matches the PO, the invoice, and the receiving report before approving payment—a process called three-way matching.
How POs Improve Accountability and Control
A robust purchase order system acts as a control mechanism, providing several layers of oversight:
- Budget control: Ensures spending aligns with approved budgets before committing funds.
- Approval trail: Shows who authorized the purchase and when.
- Fraud prevention: Makes unauthorized transactions more difficult.
- Audit support: POs provide verifiable documentation during financial audits.
Without this structure, businesses risk disorganization, overpayments, supplier conflicts, and compliance violations.
Integration with Inventory and Finance Systems
Modern purchase orders don’t function in isolation. Instead, they’re part of a larger ecosystem connecting inventory management, finance, and supplier systems. When integrated:
- Inventory is automatically updated upon receiving goods.
- Finance teams can track committed vs. actual spending.
- Reports and analytics draw from real-time PO data.
- Duplicate entries and human errors are significantly reduced.
Whether through an ERP system or specialized procurement software, integration is essential for streamlined operations.
Digital vs Manual Purchase Orders
Traditionally, purchase orders were printed documents filled out and signed manually. However, digital transformation has introduced cloud-based PO systems, which offer major advantages:
Manual PO challenges:
- Prone to data entry errors
- Time-consuming to track
- Poor visibility and reporting
- Slower approval workflows
Digital PO benefits:
- Automated generation and approval
- Electronic records and audit trails
- Faster communication with suppliers
- Real-time tracking and status updates
Digitizing the purchase order process not only saves time but also increases accuracy and enhances operational agility.
Real-Life Example of a Purchase Order in Action
Consider a software development agency that outsources UI design to freelance professionals. After receiving a requisition from the design lead, the procurement officer issues a purchase order specifying the scope of work, deliverables, timeline, and payment terms.
Once accepted by the designer, the PO becomes a binding agreement. After successful delivery, the invoice is matched to the PO, and payment is processed efficiently.
This simple example illustrates how POs help define expectations, provide legal protection, and facilitate smooth transactions.
Common PO Errors and How to Avoid Them
Despite their importance, purchase orders can introduce problems when mismanaged. Common errors include:
- Incorrect vendor details
- Misaligned prices or quantities
- Delayed approvals
- Lost or duplicated POs
- Missing terms and conditions
To avoid these issues:
- Use standardized templates
- Automate the PO process..
- Set approval limits and workflows.
- Train staff in procurement best practices
- Periodically audit PO usage and accuracy.
When is a Purchase Order Not Necessary?
Although POs offer numerous advantages, they may not be required for every purchase. For example:
- Petty cash expenses (e.g., office snacks)
- Emergency purchases under a certain amount
- Internal service transactions
However, setting clear thresholds and exceptions is important to avoid misuse. Even in these cases, some businesses choose to log requests for tracking purposes.
Why the Distinction Matters in Procurement
For small businesses, startups, and large enterprises alike, distinguishing between purchase requisitions and purchase orders improves accountability. It ensures that no money is committed without proper authorization, while also guaranteeing that purchases align with budgets and strategic goals.
Confusing the two documents can lead to:
- Approval delays
- Duplicate orders
- Unauthorized purchases
- Financial misreporting
- Vendor relationship issues
To prevent this, every employee involved in purchasing should know when to use a requisition and when to generate a purchase order.
Detailed Comparison of Functions
Let’s explore the roles and characteristics of both documents in greater depth:
Initiation vs. Execution
A purchase requisition starts the internal conversation. It signals the need for goods or services and seeks management’s go-ahead. On the other hand, a purchase order is the result of that conversation and instructs an external supplier to fulfill the order.
Internal Control vs. External Communication
Requisitions are created, processed, and approved entirely within the organization. They help enforce internal policies and budget oversight. Purchase orders, by contrast, are sent outside the company to suppliers, functioning as formal procurement documents.
Approval vs. Commitment
A purchase requisition is a preliminary document. It must go through approval before any commitment is made. A purchase order, once approved and sent, commits the company to pay under the agreed terms and is legally enforceable.
Informal vs. Formal Language
Requisition forms often contain casual or flexible descriptions, like “20 office chairs, any brand.” Purchase orders must be precise, including model numbers, quantities, pricing, and delivery terms, because they serve as binding contracts.
Workflow Dependency
A purchase order is almost always created after a purchase requisition is approved. Businesses that skip requisitions risk poor budget control, while those that skip POs risk operational and legal issues with vendors.
When to Use a Purchase Requisition
Purchase requisitions are essential in organizations with structured purchasing policies. They are used when:
- An employee needs permission before ordering supplies.
- Departments need to align their needs with budget allocations.
- There is a need to avoid duplicate purchases across departments.
- Internal documentation and approval are required for audits.
For example, a content team might submit a requisition for video production software. The finance department reviews the budget, the IT team checks for existing licenses, and only after approval does the procurement team create a purchase order.
When to Use a Purchase Order
Purchase orders come into play once the need has been validated. They’re crucial when:
- Making formal purchases from external vendors.
- Creating contracts that legally protect both parties.
- Tracking commitments for financial reporting.
- Ensuring vendor delivery under agreed-upon terms.
A purchase order is mandatory in businesses that want to match invoices, track deliveries, and enforce procurement discipline.
Example Workflow: From Requisition to Payment
Let’s walk through a common example of how both documents fit into the procurement lifecycle:
- Need is Identified
The office admin realizes the team is out of toner cartridges. - Purchase Requisition Created
Admin fills out a requisition form detailing the type, quantity, and expected cost of cartridges. - Approval Process
The department head and the finance department approve the requisition after checking the budget. - Purchase Order Created
Procurement issues a PO to a trusted office supply vendor for the approved items. - Supplier Delivers Goods
Toner cartridges arrive with a packing slip that matches the PO. - Invoice Received
The vendor sends an invoice referencing the PO number. - Three-Way Matching
Finance compares the invoice, PO, and delivery receipt. Everything matches. - Payment Processed
Vendor is paid, and records are updated.
This streamlined process illustrates how requisitions and POs work in tandem to create clarity and control.
What Happens If One Is Skipped?
Skipping the purchase requisition might lead to:
- Over-ordering
- Budget overruns
- Unapproved vendors
- Conflicts between departments
Skipping the purchase order may result in:
- No formal agreement with the supplier
- Disputes over pricing or quantity
- Difficulty matching invoices
- Audit and compliance issues
Both documents are critical. Eliminating either undermines transparency and risks financial inefficiencies.
Requisitions and POs in Procurement Software
Procurement software integrates both steps, automating much of the workflow. Employees can raise requisitions within the system, which routes them for approval based on pre-defined rules. Upon approval, the system can automatically generate a PO, often using data from the original request.
Benefits of this approach include:
- Reduced paperwork
- Faster approvals
- Centralized documentation
- Customizable approval chains
- Enhanced compliance and reporting
Modern software also flags discrepancies during invoice matching, helping teams catch issues early.
Which Teams Are Involved?
Purchase Requisition Stakeholders:
- Requesters: Employees needing goods or services
- Approvers: Managers and finance controllers
- Procurement: Oversees workflow compliance
Purchase Order Stakeholders:
- Procurement: Creates and sends POs
- Vendors: Accept and fulfill the order
- Accounts Payable: Matches PO with invoice and releases payment
Understanding stakeholder roles helps ensure smoother handoffs and reduces delays.
Which is More Important?
It’s not a matter of one being more important than the other. Rather, both are parts of a unified procurement process. Think of a requisition as the internal permission slip, and a PO as the purchase contract.
If requisitions are skipped, purchasing decisions may go unchecked. If POs are skipped, there’s no legal or financial documentation of purchases. Together, they enforce compliance, accountability, and structured spending.
Why Combining Requisitions and Purchase Orders Strengthens Procurement
Companies that use both requisitions and purchase orders systematically enjoy better:
- Budget visibility
- Approval discipline
- Vendor accountability
- Inventory control
- Audit-readiness
Using requisitions alone means you only have internal approvals without legal supplier commitments. Using POs alone skips the pre-approval process and risks overspending. Combined, they form a full-circle workflow that tracks each step of a purchase, from the initial need to final payment.
Designing a Procurement Policy Around Requisitions and POs
An effective procurement policy clearly defines:
- Who can request purchases
- What types of purchases require approval
- Spending thresholds for requisitions and POs
- Approved suppliers and purchasing channels
- Documentation and reporting standards
The following elements can help solidify your procurement structure.
1. Define Authority Levels and Approvals
Every organization should define spending limits and approval levels. For example:
- Requisitions under $500 may need only a manager’s approval.
- Purchases between $500–$5,000 may require finance sign-off.
- Anything over $5,000 may need executive-level clearance.
This structure prevents unauthorized spending and empowers employees within defined limits.
2. Centralize Requisition Submissions
Avoid email or verbal requests. Use a centralized form (digital or paper) to submit purchase requisitions. This ensures consistency, accountability, and proper documentation for audit trails.
3. Require POs for All External Transactions
Make it mandatory to create a purchase order for all approved external purchases, regardless of size. This helps with tracking, invoicing, and legal compliance.
4. Standardize Document Templates
Use consistent templates for both requisitions and POs. Include required fields such as:
- Item details
- Quantity
- Budget code or department
- Supplier information
- Requested delivery date
- Approver’s signature or digital authorization
Templates minimize confusion and ensure complete records.
5. Link Purchase Orders to Requisitions
Ensure every PO is traceable to a requisition. This provides full transparency in the workflow and allows for easier tracking during invoice reconciliation.
Automating the Procurement Workflow
Automation allows businesses to streamline every step of the purchasing process. Procurement tools or enterprise software platforms can digitize, approve, and track both requisitions and POs in a connected system.
Benefits of Automation
- Faster approvals with email or in-app notifications
- Fewer errors through pre-populated vendor/item data
- Real-time tracking of order status
- Automatic record-keeping for audits
- Budget alerts for overspending
Features to Look for in Procurement Software
- Requisition creation and routing
- Purchase order generation
- Multi-level approvals
- Vendor database integration
- Invoice matching and reporting
- Integration with accounting/inventory tools
By investing in procurement automation, companies reduce bottlenecks, empower employees, and enhance control over business spending.
Sample Workflow: Automated Purchase Requisition to PO
- Employee Submits Digital Requisition
Using a cloud-based form, an employee requests new hardware for a project. - Approval Routing
The system automatically routes the request to a project manager and then to finance. - Requisition Approved
Once all necessary approvals are given, the system generates a purchase order based on the requisition details. - PO Sent to Vendor
Procurement selects a vendor from the database. The system sends the PO by email with a unique PO number. - Status Updates and Delivery Tracking
The system updates the delivery status and logs confirmation when the goods are received. - Invoice and Payment
The invoice is matched to the PO and delivery record. Once verified, finance initiates payment.
This seamless, transparent process is efficient and scalable, even for growing businesses.
Best Practices for Managing Procurement with Requisitions and POs
Here are some proven tips to build resilience and reliability into your purchasing processes:
1. Educate Employees
Train staff on the difference between requisitions and POs, and ensure they understand the proper steps. Misunderstandings are a common source of procurement issues.
2. Review and Refine Policies Regularly
Update your procurement policy as the business evolves. New departments, vendors, or budget changes may require updated approval flows or templates.
3. Track KPIs
Use metrics such as:
- Requisition approval time
- PO cycle time
- PO-to-invoice match rate
- Supplier delivery reliability
- Cost savings from vendor negotiations
These KPIs help identify bottlenecks and opportunities for improvement.
4. Maintain Vendor Relationships
A clear, well-managed PO system builds trust with suppliers. It ensures timely payments and accurate orders, encouraging vendors to prioritize your business.
5. Integrate Procurement with Inventory and Finance
Avoid siloed systems. Use platforms that connect procurement with:
- Inventory (to update stock upon receipt)
- Accounting (for budget control and payments)
- ERP systems (for end-to-end visibility)
This enhances coordination and eliminates redundant data entry.
Common Pitfalls to Avoid
Even businesses with good intentions can fall into traps. Avoid these mistakes:
- Skipping requisitions for urgent needs: This leads to poor documentation and budget overspending.
- Issuing POs without approval: Undermines financial control.
- Using outdated forms: Results in incomplete or incorrect data.
- Manual matching of invoices: Time-consuming and prone to error.
- Poor communication with suppliers: Causes delays or misaligned expectations.
Final Thoughts:
The strategic use of purchase requisitions and purchase orders is more than a clerical process—it’s a critical element of sound financial management. When aligned with business goals and supported by smart technology, these tools protect companies from financial waste, legal exposure, and operational inefficiencies.
By enforcing a policy that includes both, businesses of all sizes can:
- Control costs more effectively
- Improve team accountability
- Enhance compliance and reporting.
- Strengthen vendor relationships
Whether you’re just starting to build a procurement framework or looking to refine an existing one, combining requisitions and POs into a single, structured workflow is the most reliable path toward operational excellence.
