How to create a purchase order process

A worked example, stage by stage

1. Internal request first

   A need identified and a requisition raised carrying cost centre, coding, quantity and need-by date. Everything that follows depends on this data being complete, which is why coding belongs on the requisition rather than being added by finance later.

2. Two gates before any commitment

   Manager approval with a revise route, then a budget check that can decline outright, then a value threshold routing to finance director approval. Three decisions and no supplier has been contacted yet — that is the point.

3. Commitment, and the supplier's own lane

   Quotes compared, supplier selected, purchase order issued, and the supplier confirms and delivers. Giving the supplier a lane makes visible how much of the elapsed time belongs to someone you cannot manage.

4. The match, and its exception

   Goods receipt and invoice arrive on independent arms, then a three-way match with a mismatch route back to procurement that re-enters the match once corrected. Without the receipt step the match cannot happen at all.

5. Approve and pay

   Invoice approved and payment released. A process that stops at the match leaves the last handoff — AP to payment run — undefined, which is where suppliers experience the delay.

How it works

1. Separate the requisition from the order

   Make them distinct steps with distinct approvals even if your system uses one form. The requisition is the internal decision; the PO is the external commitment. Collapsing them means the budget check happens after the supplier has been told to proceed.

2. Put the budget check where it can still say no

   Before the PO is issued. Decide too whether it tests committed spend — open requisitions and open orders — or only posted actuals, and write that on the step. Checking actuals alone means the budget looks available right up until every open order lands.

3. Set thresholds from the delegation of authority

   Take the figures from the authority schedule, state the currency, and set them high enough that the second approver triggers rarely. Low thresholds produce order splitting, which is precisely the behaviour the threshold exists to prevent.

4. Make the goods receipt someone's job

   Name who records receipt and by when. This is the step organisations skip because it feels like admin, and its absence is the direct cause of most invoice exception queues — with no receipt, the match cannot run and every invoice needs manual chasing.

5. Write the match tolerance and name the exception owner

   Put your price and quantity tolerance on the three-way match decision and name who owns the mismatch queue. Without a stated tolerance every rounding difference becomes an exception, and the exception queue quietly becomes the real process.

6. Draw the routes that bypass the PO

   Purchasing cards, framework call-offs and emergency purchases exist. Draw them with their own controls rather than pretending they do not happen — an undrawn bypass has no controls at all, and it is where unrecorded commitment accumulates.

Frequently asked questions

What is the difference between a purchase requisition and a purchase order?

A requisition is an internal request to buy: it carries the cost centre and coding, is routed for budget and management approval, and creates no obligation to any supplier. A purchase order is the external commitment issued once the requisition is approved, fixing item, quantity, price and delivery terms. Keeping them separate is what allows the budget check to happen while declining is still free.

What is a three-way match?

A comparison of the purchase order (what you agreed to buy), the goods receipt note (what actually arrived) and the supplier invoice (what you are being asked to pay). If all three agree within tolerance the invoice can be approved without further review. It is the main control against paying for goods never received or at a price never agreed — and it depends entirely on someone recording the receipt, which is why that step deserves a named owner.

How many approval levels should a purchase order process have?

Two covers most spend: the budget holder for everything, plus a second approver above a threshold taken from your delegation of authority. Each extra level adds queue time and encourages splitting orders to stay under a limit — the exact behaviour the threshold is meant to prevent. If a level has never rejected anything, it is a notification and should be drawn as one.

What should happen when an invoice does not match?

It goes to a named owner rather than sitting in the AP queue. The usual causes are a price change the supplier applied without amending the PO, a short or partial delivery, or a goods receipt nobody recorded. Route the mismatch back to procurement to resolve with the supplier, then re-enter the match once the PO, receipt or invoice has been corrected — so nothing is paid on the strength of an email.