Purchase orders have long been a staple in large finance departments, but they required time and effort to process. Today, thanks to technological advancements, there are applications that automatically handle every stage of a purchase transaction, from request to receipt, making the whole process a lot less labour intensive.
With that in mind, should more small businesses being using purchase orders? What are the benefits? According to the administration pages of Loyola University New Orleans, there are several benefits of purchase orders.
Five benefits of purchase orders for small businesses
Without purchase orders, it’s difficult to check if you got what you ordered or what you originally wanted. It’s also difficult to enforce budgets and accountability. Cross-checking different systems or looking up information in different spreadsheets or piles of paper takes time. But having an efficient purchase order system can save time, cut costs and avoid cash flow nightmares.
Purchase orders reduce the risk of internal fraud, for example where an employee asks for a higher amount than needed to pay for purchases and then pockets the difference. Purchase orders also offer an audit trail of who handled a particular purchase transaction so they can be held accountable in case of inconsistencies.
Purchase records ensure that information is readily available and over time you can build up a picture of purchasing trends and vendor behaviour, which helps with planning, negotiation and budgets.
Easier planning and control
A proper purchase order process means that before any purchase is made, someone can check that there are sufficient funds to pay for it. This makes it easier to create budgets, plan and control cash flow. This is especially important for small businesses.
When proper records are maintained for every transaction, income and loss statements, profit and loss accounts and cash flow statements are that much more accurate.
Are purchase orders good for small businesses?
Purchase orders are often associated with more paperwork and more administrivia. Yes this is a risk, but implement the right automated system (ahem, like Turbine) and requests can be created and approved at the click of a button and alerts sent out direct to email, meaning they can be addressed immediately.
As Tom Kieley points out, ‘an automated system can generate error-free purchase orders in a fraction of the time – freeing the humans up to do what they do best.’
Purchase orders ensure there’s an audit trail, keeping both employees and vendors on the straight and narrow. They give you information to plan budgets and negotiate with vendors and all for a minimum amount of effort when you use an automated system to manage them.
The answer’s obvious: the benefits of purchase orders are good for business.