[Updated: 2nd Nov 2017]
Purchase orders have long been a staple in large finance departments, but they required time and effort to process. Today, there are applications that automatically handle every stage of a purchase transaction. From request to receipt, purchase orders make the whole process a lot less labour intensive.
With this in mind, should more small businesses be using purchase orders? Well, according to the administration pages of Loyola University New Orleans, there are several benefits of purchase orders.
Here are our top five.
1. Efficient operations
Without purchase orders, it’s difficult to check if you got what you ordered. 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. Time saved, costs cut and the avoidance of cash flow nightmares, then, are three perks.
2. Reduced fraud
Audit trails is another benefit. 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.
3. Better information
Purchase records ensure that information is readily available. Over time, you can build up a picture of purchasing trends and vendor behaviour. This helps with planning, negotiation and budgets.
4. Easier planning and control
With the right processes in place, administrators can make sure there’s enough money in the bank account prior to a purchase order. This makes it easier to create budgets, plan and control cash flow. This is especially important for small businesses.
5. Accurate records
When proper records are maintained for every purchasing order transaction, the accuracy of income and loss statements, profit and loss accounts and cash flow statements increases.
Are purchase orders good for small businesses?
Purchase orders can mean more paperwork and more admin. Yes, this is a risk, but implement the right automated system (ahem, like Turbine) and you can create and approve requests at the click of a button, send alerts out direct to email, and immediately address issues.
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.’