Being a small business owner, you must tackle and manage multiple tasks simultaneously. And the last thing you want is a problem with the purchase order because one mistake will ruin your entire transaction.
But that’s the reason, you have landed on this blog to know about purchase order practices for small businesses that will help you to create a purchase document efficiently and manage the procurement process smoothly with InvoiceOwl.
So, let’s start with a definition of the purchase order.
What is a Purchase Order?
A purchase order is a legal document that buyers issue to vendors as a translation order for materials. The PO is issued after the buyer determines to buy goods or services from the vendor.
The purchase document is beneficial in numerous ways like tracking payments, managing expenses, less duplicate errors, and optimising work efficiency. Once the PO is sent to the vendor, it cannot be taken back.
After the document is approved, the vendor will generate an invoice for the goods and materials.
Let’s see how a purchase order process works in the next section.
5 Steps for a Purchase Order Process
You can create an accurate PO document by adding the right information. All you need is to follow the steps mentioned below and don’t skip any steps in the process:
1. Determine materials or service
Before generating a procurement document, you should have a clear idea of what you want to do. Whether it is a material or goods and services; determine first what you want to have. Once you are sure about it, you will contact the vendor about it.
2. Place the order
By communicating with the vendor about the product or services, you will place the order it for the same. Let the vendor confirm about it the availability of it then place the order. Once you do that, it is time to create a purchase order document.
3. Make PO document
With the help of purchase order software or template, you will create a procurement document. In this document, you have to mention all information about the procurement such as buying details, payment terms, date, and contact information.
4. Review and approve
Generating a PO is not enough, you need to review it before sending it for approval. Ensure that all necessary information is added for approval. Once, the PO is reviewed, it will be sent to the supplier or vendor for the final process, and invoice.
5. Sent Invoice
Sending an invoice is the last process of the procurement process. After the supplier or vendor approves the PO document, they send an invoice for the final payment.
Now, let’s come back to PO practices that every small business owner should know.
Purchase Order Practices
1. Digital Purchase Order System
When everything is shifting to digital, then transforming how creating purchase document be left. It is a useful medium for small business owners as the automated process handles and ensures every detail of the PO.
In the digital order system, the information is stored and a template is available. So, you don’t have to spend extra hours going through the information and then create a purchase order manually.
Moreover, the purchase order system helps to reduce error and doesn’t let events like misplacing or damaging purchase document happened. Once you adopt it, you don’t have to look at details, the automated process will do its work. Therefore, it saves your time and money.
2. Purchase Order Management
Monitoring and managing PO is essential for the procurement process. As the process is crucial, it is important to keep procurement order management and tracking as practices. Keeping a track of PO will help you to minimize human error.
For this, you have to create a database or gather insightful information. You can use automation software to track procurement. Every procurement document has the purchase order number that helps to identify transactions.
Purchase management helps you to improve business workflow and boost productivity.
3. Analyze KPIs
To follow the smooth procurement process, you need to analyze the KPIs. It helps to maintain and streamline the workflow. Moreover, you have identified plus and lack points of the purchasing process.
PO documents represent your company’s brand; so it is important to not let any silly mistake ruin it. By analyzing KPIs, you can optimize future association with vendors and sellers.
Being a small business owner, making informed decisions is essential and it could be done if you follow this practice.
4. Better workflow
In the procurement process workflow matters as proper workflow will only let you make transactions. You can customize it per your business requirements and the company’s size.
With the approval workflow, there will be control on organization costs and reduce mismanagement among financial transactions. You don’t have to go through vendor details because the workflow will help to analyze the data.
However, to keep the workflow in check, you need to get PO management software to keep the workflow effective.
5. Vendor Database
It is a good medium to record the transaction. A database will help you to know the transactions with the vendor and keep track of the procurement process. Moreover, it makes it easier for you to check and track financial transactions.
It also reduces the mistake of miscalculating and creating the wrong PO to a different vendor. The practice will fasten your behavior records with the vendor. You would know if there are still transactions with the same vendor.
Do not forget to add all vendor’s detail to the database. To create a procurement document you need to have vendor records like the company’s name, contact detail, payment terms, email address, and date.
Purchase order document is vital for financial and business transactions; so following these practices will help you to create and send purchases efficiently. A purchase order is a powerful document to build a good relationship with your suppliers; hence generate a perfect purchase order document.