Most companies have a standardized process when it comes to procurement. Whether it’s to purchase new equipment, hire another team member, or sign up for an additional service, an employee may need to request permission from the company’s finance department before the actual purchasing of goods and services takes place.
A purchase requisition is one of the first steps in the procurement process, and it helps organizations maintain strong internal controls and have a better visibility of business spending.
What is a purchase requisition?
A purchase requisition is a formal internal request to purchase a product or service. Most businesses have some sort of purchase requisition form to make the request.
This may come in the form of an online form, an emailed Word document, or a printed document.
Each company has its own procedures and approval process for purchase requisitions. This can include who to send the form to, who has to approve it, and when approvals are needed. Even smaller companies that don't have a formal requisition process usually have rules about who has to approve spending.
The purpose of a requisition is to control company resources. A requisition prevents employees from making unbudgeted expenses without getting approval. There may be a good reason to make the requisition, but the right person needs to make that decision.
Some companies also use requisitions to manage internal resources. For example, instead of having an open supply room where employees can just take things, they may need to fill out a requisition form first. This allows companies to better track inventory and control expenses. Even when they've already purchased supplies, those supplies will likely need to be replenished.
Purchase requisition vs purchase order
A purchase requisition and purchase order (PO) are not the same thing. A requisition is an internal process; it gets permission to buy something. Once the requisition is approved, a purchase order comes next.
The purchase order is how the company tells the outside company it wants to buy something. There can also be internal purchase orders. This happens when one department needs to order supplies or services from another department.
Who sends the purchase order can vary by company. Some companies have a separate purchasing department. If they don't, it might be a manager or someone from the accounting department.
To help prevent unauthorized transactions or fraud, it's a good internal control for a different person to send the purchase order from the person who made the requisition request. However, some companies may have varying rules depending on the sum total.
What is a purchase requisition number?
A purchase requisition number, or requisition number, is an identifying number. It doesn't necessarily have any special meaning, it just allows a requisition to be tracked. For example, if a manager enters req number 123 into the company's computer system, they might be able to easily pull up the requisition form.
Some companies might use a special format for their requisition numbers. For example, the first two numbers in the number might correlate to a specific division in the company. The last part of the number will always be unique to identify the specific requisition.
The requisition number will also usually appear on the approval form and connected documents like the purchase order. By using a tracking number, any authorized person in the company can track a payment the company made or an item that it received back to the original requisition form.
What's the difference between requisition number and purchase number?
A requisition number is not the same thing as a purchase number. Just like a requisition form gets a unique number, so does the purchase order.
The purchase number works the same way as a requisition number. It identifies the purchase order and allows subsequent activity to be tied back to the purchase order in the company's procurement system.
In theory, a company could just use the same number for both the requisition form and the purchase order; however, using two numbers allows for better internal controls.
If each step of the process requires getting a new number, it's easier for other people in the company to check that transactions are authorized. For example, the accounts payable department might notice that an invoice ties to a valid requisition number but doesn't have a valid purchase order number. This can alert managers that the transaction needs to be investigated.
Who prepares the purchase requisition?
Also known as the requester/requestor, the employee who is asking permission from the accounting department to obtain the supplies or other goods is the one who fills out the purchase request, adding it to the purchase requisition workflow.
Any staff member can fill out a requisition form, but it's typically department heads familiar with the needs of each department that will fill out the internal document. Sometimes, general employees may bring a need to the attention of a finance department manager, who will add it to that week or month's requisition form.
The requester completes the form, explaining what the department needs and why. Regardless of who completes the requisition form, the department manager or other head employee must begin the approval process and sign the requisition, signaling that it's been approved. For this reason, it is sometimes easier to have this process online.
What information should be in a requisition form?
What requisition details the requestor needs to include will vary based on company policy. Within each company, the procedures can vary based on what you want to purchase. The following information is commonly included on a purchase requisition form.
- The requestor's name and job title
- The item requested
- The reason for the request
- The dollar amount of the purchase
- The date of the request
- The desired delivery date
- The proposed vendor name
Some companies might also have blank lines for the approvals and PO numbers. This makes the purchase order process workflow easier, but it's important to make sure employees understand which parts they fill out and which parts they leave blank.
Requisition forms don't have to be long and often don't take up a full page. Even in the case of a major purchase or adding a new position, the requisition form itself might not be long.
Instead, it might be a formality after the purchase decision was already made in meetings. Whether or not the purchasing decision has already been made, using a requisition form is a good documentation practice.
What are the steps of the purchase requisition process?
While specific steps vary depending on various factors, such as the size of a company, the overall process is the same.
- An employee fills out and submits the purchase requisition (the form should have a purchase requisition number) detailing what the business needs.
- The department manager approves (or rejects) the requisition.
- If approved, the requisition is sent to the inventory department to ensure the items aren't already in company stock.
When the order arrives at the business, it's delivered to the receiving department. The receiver then ensures the correct items have been delivered, the items are in good condition, and the correct number of items have been delivered.
The accounts payable department typically uses a three-way matching system to ensure that the purchase order, receipt, and vendor invoice all match, including dollar amounts. Three-way matching of these key documents helps the finance team ensure they only pay for what was ordered and subsequently delivered and nothing more.
When each department has successfully verified all these criteria, the accounts payable team closes the purchase order, approves the invoice, and makes the payment. This is a workflow that can benefit from proper automation.
Why is it important to use a purchase requisition?
There are several advantages of using a purchase requisition in your business. The purchase requisition:
- Enables transparency. Using purchase requisitions adds a buffer to your entire procurement process—it ensures that each responsible department has signed off on the purchase and that it's accurate and legitimate.
- Streamlines purchasing. Purchase requisitions are just a part of centralizing processes and keeping workflow management defined.
- Prevents fraudulent purchases. If your company doesn't have well-defined processes in place for business purchases, employees have wiggle room to make fraudulent purchases.
- Prevents accidental duplicates. Having numbered purchase requisitions helps your team stay on top of requests and helps avoid accidental duplicate orders.
- Holds your team accountable and increases security. A purchase requisition is a critical piece of an audit. In the event of an audit, you'll need to show proof that your department heads approved specific purchases — this helps validate all the details for each transaction.
- Helps save the business money. Using a single source of truth — the purchase requisition management platform — can save you time and money.
What happens if a purchase requisition gets denied?
Since the purpose of a requisition is to get approval, it also means a requisition can be denied.
This could be for several reasons:
- If there is an error in the requisition form or requisition process, the person making the requisition needs to go back and fix the error before resubmitting.
- If the requisition goes against company policy, there may still be a good reason for making the requisition anyway. This requires making a business case to a manager who's high enough to waive or change the policy.
Companies should keep denied requisitions in their files along with approved requisitions. This allows managers to review the reasons for denials as needed. It also creates a paper trail in case someone in the organization tries to go through with a denied requisition anyway.
Are requisitions needed for ongoing orders?
You don't necessarily have to fill out a separate requisition for frequent orders. For example, say a company needs 20 boxes of paper monthly. The original requisition might be to make a monthly purchase of 20 boxes instead of having to fill out a separate form each month.
For these types of purchases, the requisition will usually have an end date and other limitations, such as if payment terms change. A new requisition would only be needed when the original one expired or a substantial change required a new requisition.
What is requisition reconciliation?
Requisition reconciliation is the process of tying everything that happens in the procurement process back to the original requisition. This ensures that the company's records are accurate and the appropriate approvals have been made.
For example, an auditor might match an invoice the company received to a receiving report to make sure the company received the goods. Then, the auditor matches the receiving report to a purchase order to make sure the company ordered the goods. Subsequently, the auditor matches the purchase order to a requisition form to make sure the purchase was properly approved. The requisition number and purchase order number allow the auditor to quickly tie all of the documents together.
The exact process will vary by company. The purpose of the reconciliation is to determine that the company's procedures were followed.
How BILL can help streamline requisition and PO processes
The requisition and purchase order process can be time-consuming and frustrating for employees and managers alike. Employees can get tired of filling out forms and managers may have better ways to spend their time than rubber-stamping routine requests. Of course, if you ask the accounting department, each part of the process is necessary for internal controls.
BILL helps to streamline the entire workflow. You can have employees submit, approve and track requests online with the software making sure the right forms always go to the right person on time.
The purchase order system is tailored to non-inventory mid-sized businesses. Like other features, it syncs with your other accounting tools like Sage Intacct and Oracle NetSuite.