As a company grows and expands its headcount, it can’t permit all employees to make purchases as they see fit.
Instead, many growing organizations impose structured procurement policies and procedures, giving teams more control over how the company’s funds are spent (and when).
Even still, employees need a way to formally request items they might need in their standard job duties, which is exactly what a requisition order is for.
In this guide, we’ll take a look at the role of requisition orders in a company’s procurement process, the key components they contain, and when they are typically used.
What is a requisition order?
A requisition order, also known as purchase requisition, is an internal document used to formally request the purchase of goods or services within a company. It signals the need for specific items and routes the request to the procurement team for review.
Once approved, it triggers the creation of a purchase order—turning the request into a legally binding agreement with the supplier.
Who uses requisition orders?
An employee or department typically submits requisition orders to an approving party within the organization.
For example, maybe a department manager at a retail store has hired a few new employees and needs to submit a requisition for the hires to receive uniforms. Or, the IT director at a law firm might submit a requisition to upgrade the cybersecurity software for the office.
Depending on the organization, only certain employees may have the authority to prepare and submit such requests, and several rounds of approvals may be required before the order is actually submitted to an external vendor.
What information is included?
Teams may have custom requisition orders to accommodate their unique internal procurement policies and procedures.
However, these documents tend to include a few key components, regardless of the business or industry, such as:
- Requestor’s name and department to identify who is making the purchase request, and their role in the organization to ensure proper approval routing and budget considerations
- Requestor’s contact information, such as their email or phone number, for any follow-up questions that may arise about the request
- Date and time of the request to provide more context and clearly track order progress
- Detailed order description, including the specifications of the product or service being requested, order quantities (where applicable), and known unit prices for budgeting purposes
- The purpose of the order, which helps justify the purchase and speed up approvals
- Delivery details, like where physical goods should be shipped and any preferred deadlines
- Vendor information, if there is a preferred vendor/supplier for the order, including their name, contact information, and other details to streamline the procurement process
Requisition order vs. purchase order
Requisition orders and purchase orders (POs) sound quite similar, though they facilitate two distinctly different purposes in the procurement process.
While requisition orders are used by employees to request the purchase of goods or services from their managers, purchase orders are external documents submitted to a vendor to formally complete a purchase.
As such, a purchase order contains key details like:
- Buyer information
- Seller information
- Description of goods and services
- Quantities
- Unit price
- Shipping terms and conditions
- Applicable taxes and fees
In other words, a purchase order is only made once the organization is ready to buy the requested items, while a requisition order is exclusively used for internal purposes.
To help solidify the difference between the two, here’s a quick overview of what they’re each used for:
Purpose of a requisition order
- When an employee identifies the need for certain goods or services, but they need to get their manager’s permission before making a purchase
- For teams that are closely monitoring the budget and need to ensure that funds are allocated appropriately
- If an employee needs to make a non-routine purchase for a high-dollar value, outside of their normal purchasing habits
The purpose of a purchase order
- After a requisition order has been approved, it’s how the company can formally place an order with a supplier
- To create a legally binding contract between both parties regarding order quantities, delivery terms, payment details, and any special instructions
- As a way to keep track of ordering and purchasing activities, which is used against invoices and goods receipts to verify accounting records with three-way matching
How does a requisition order fit into the procurement process?
Employees kick off the procurement process by submitting a requisition order. Again, it’s their way to formally request goods or services that they need to complete their job duties.
Requisition orders are typically submitted to the employee’s manager or the person within the organization in charge of managing the budget.
From there, the designated approver will review the request and determine if the purchase is necessary and feasible given the current budget. Thus, purchase requisitions play an important role in helping organizations stay on budget and avoid overspending.
Upon approval, the procurement specialist will prepare and submit a purchase order with an external vendor, which we’ll cover in further detail below.
Benefits of using requisition orders
Though they add another layer of approvals, requisition orders can also help teams improve internal controls and accountability in purchasing activities. Here’s a closer look at the benefits that these documents can provide:
Streamline the purchasing process
Using requisition orders can actually help streamline the purchasing process for an organization, even though it may seem like an extra task to complete before an order is placed.
It gives employees a clearly defined way to submit their requests for purchase. Likewise, managers have just one procedure for reviewing and approving such requests, which helps avoid scenarios where the request slips through the cracks and becomes forgotten.
Reducing errors and enhancing accountability
Submitting a requisition order to an approver means the purchase request receives another set of eyes to review, which helps ensure accuracy.
If the employee making the request made any errors in the quantity, unit price, chosen vendor, or other details, there’s still time to make an adjustment before actually placing the order. Or, if the employee is requesting the purchase of goods or services that have already been ordered, it can prevent the company from making a duplicate purchase.
In this way, requisition orders also provide a clear audit trail, which improves accountability in the procurement process. Teams get a clear view of who requested which purchases, who granted approvals, and which requests were denied.
Improving financial control and tracking
Possibly the biggest advantage of requisition orders is that they help businesses control purchasing activities.
Rather than allowing all employees to place orders as they see fit, requisition orders give approvers the chance to review the purchase in the context of the overall budget, ensuring that it’s a good use of the company’s capital at the time of the request.
In other words, these documents help companies minimize unnecessary or unauthorized spending that jeopardizes the budget. As mentioned above, they provide greater visibility into all requests and approvals, which supports easier tracking of spending decisions.
Automate requisitions and PO processes
For growing teams, managing the procurement process can become time-consuming and tedious. Between collecting requisition orders, routing approvals, placing orders, and managing vendor invoices, all these moving parts take valuable time out of employees’ and managers’ workdays.
With BILL Procurement, teams can utilize a single, centralized platform to manage the entire process. Our easy-to-use workspace supports the entire procure-to-pay workflow, from submitting a purchase request to paying and reconciling the vendor invoice.
Automate your procurement process with BILL Procurement!
