What is Digital Purchase Order? Definition, Features & Benefits

Maximize ROI and Processing with Digital Purchase Order

Purchase order processing is an important part of a business, no matter the size and type of business. Regular purchase of goods and services is part of business operations. Paper-based purchase order processes can slow down business operations and run into costs. Handling purchase order processes manually requires stakeholders to search for records in the filing cabinets, emails, and local drives.

Digital purchase order on the other hand streamlines the purchase order processing so that efficiency and productivity can be improved significantly.

Eliminating Paperwork from Purchase Order Processing

Purchase orders contain complete information about the goods and services purchased by the business. It is a commercial source document that is issued by the procurement department while placing orders with vendors or suppliers. Complete details on the items that are purchased like the Purchase order number, type, and quantity of goods and services, the total price of the purchase, and terms and conditions of payment are included in the purchase order.

There are several steps involved in preparing the purchase order, as mentioned below:

1. Creating a purchase order requisition:

Once the requirement has been identified, a purchase requisition is created. The requisition contains details of the type and quantity of the requirement and is identified by a unique purchase requisition number. Once approved by the authorized manager, the purchase order is created based on the details provided in the PR. The purchase department uses a purchase requisition to keep track of the expenses.

2. Creating a purchase order:

The buyer creates a purchase order based on the information provided in the purchase requisition. Details such as the PO number, date of order, shipping information, name and address of the seller, description of goods and services, item number, quantity, and price. The PO number is unique to the order, it is used for matching received goods against that mentioned in the PO and against the invoice issued by the seller.

3. Sending the PO to the Seller:

The purchase order is then sent to the chosen seller. Once the PO is reviewed by the seller, it can be accepted or rejected. Once accepted by the seller, the PO becomes a legally binding document for both parties. The seller has to deliver the goods or services as per the terms and conditions mentioned in the purchase order.

4. Completing the Purchase order:

The purchase order remains open after the seller accepts the PO. The PO remains open until the goods are delivered by the seller. Delivery of all the goods or services as per the terms and conditions mentioned in the PO completes the PO order processing.

When all of these steps are executed through manual processing, it involves voluminous paperwork. Managing purchase orders through paperwork is cumbersome and requires extensive validation of data. Matching purchase order data against invoice data involves long hours of work, which eats up the productive work hours of employees.

Paperwork is subject to human errors, inaccuracies, and tedious data entry. The occurrence of misplacement and duplication is more in PO processing involving paperwork. Creating POs manually cannot be standardized, which may lead to issues in the matching of invoices against PO data.

Eliminating paperwork in digital purchase order processing saves time and money for the business. The electronic purchase order system eliminates paperwork and the inaccuracies and delays associated with manual paperwork.

Streamlining Digital Purchase Order Processing

Manual purchase order processing is ridden with bottlenecks and redundancies. The procurement and finance team spends a lot of time validating POs and matching invoice data. Automating the purchase order processing enables businesses to streamline the process workflow. A digital PO system allows businesses to consolidate the core purchasing information into a central database that can be accessed from anywhere, at any time. The availability of data in a standardized form makes it easy to validate and recall data easily and quickly.

Here are the steps involved in automating and streamlining the PO process workflow:

1. Switch to digital purchase orders:

The first step in streamlining the PO workflow is to switch from paperwork to digital purchase orders. Paper-based manual PO processing puts businesses at risk. Switching over to digital purchase orders reduces the chance of duplication and reduces errors. Consolidation of purchase order data is easier and more accurate in the electronic purchase ordering system.

2. Centralizing purchase order data:

Providing centralized access to purchase data ensures the availability and consistency of data across access channels. The productivity and efficiency of the procurement team increase significantly as duplication and inaccuracies in purchase data are avoided by providing centralized access.

3. Setting authorization and access levels:

Approval of purchase orders is typically delayed in a manual process. Using digital purchase order software, the procurement team can grant authorization to managers so that POs are automatically routed to them for approval. Automated alerts and notifications can be programmed so that the approver is intimated of the approaching approval deadlines. Access levels for the purchase data can also be provided so that only authorized stakeholders can edit the PO data, others can be given read-only access. This ensures the consistency and safety of PO data.

4. Clearing payment dues on time:

Maintaining and managing supplier relationships is crucial for the procurement team. Clearing payment invoices on time helps strengthen vendor relationships and take advantage of discounts provided by the vendor. A purchase order entry system enables the procurement team to keep track of received payment invoices and ensure timely approvals and payments.

5. Linking POs with budgeting:

A purchase order portal helps track each purchase order and links it with the relevant budget. Linking purchase order data with corresponding budgets helps leadership to keep a tab on purchases. The electronic purchase order system should issue alerts whenever the PO data exceeds the set limit.

Setting up the above checks in the electronic purchase order system streamlines the purchase order processing workflow. Repetitive steps in purchase order processing are eliminated by automating the workflow. A digital purchase order system enables the procurement team to focus on strategic initiatives rather than mundane admin tasks.

What is an Electronic 0r Digital Purchase Order?

An electronic purchase order is similar to a traditional purchase order, except that the data isn’t recorded on paper. The electronic requisition system creates a digital purchase order that outlines the line items in the order, the price and quantity, delivery instructions, and terms and conditions.

An electronic purchase order system frees the procurement team from paperwork. This paperless process saves time and money for the procurement team.

Purchase orders are an integral part of running a business; they help keep track of business spending and in keeping everyone accountable. With the help of the purchase order module, the procurement team can accelerate the PO process, minimize errors, and maintain an accurate log of purchase transactions.

An electronic purchase order system helps companies control costs in many ways by adding features like PO and invoice approval, tracking, and control.

Components of a Digital Purchase Order System

The purchase order journey starts with the approval of a purchase requisition. Once the purchase requisition is approved, a PO is created based on the information contained in the PR. The electronic purchase order system must take care of the entire PO lifecycle, from creation to closure.

The components of the digital purchase order system are:

1. PO creation:
A purchase order is created by extracting information from the purchase requisition. Complete details of the order are provided in the PO. An electronic purchase order system automatically generates a PO containing details like PO number, quantity and price, payment terms, and date and time of delivery.

2. PO Review and Approval:
The digital purchase order system directs the PO to the concerned authority for review and approval. The PO software provides the approver access to purchase data required to review and approve the PO. Electronic PO software ensures that there are no bottlenecks or delays in the approval of a PO.

3. Sending PO to vendor:
An approved PO is sent to the vendor for acceptance. Once the PO is accepted by the vendor, it becomes a legally binding document. Electronic purchase orders are sent to the vendor through online channels.

4. Acceptance of PO:
Transactions executed via electronic purchase order processing systems communicate electronically. The acceptance of the electronic purchase order is communicated by the supplier through email. Once accepted the PO becomes a legally binding document that is used as a reference document in case of any issues.

5. Receipt and inspection of Goods and Services:
The supplier delivers goods as per the date and time agreed in the PO. The buyer inspects the goods and services received to ensure that they meet the quality standards outlined in the PO.

6. Receiving Invoice:
When the inspection goes well, the buyer generates an invoice and sends it to the buyer through electronic channels. The electronic purchase order system then routes the invoice to the designated authority for approval.

7. 3-Way matching of Invoice:
One of the most important steps in PO processing is the 3-way matching of the invoice against the PO and PR data. This matching is done automatically by the electronic PO system. Automated invoice matching eliminates the delay in invoice approval.

8. Approval and Payment of Invoice:
Once the 3-way matching goes on smoothly, the invoice is approved and sent to the finance for payout.

9. PO Closure:
The last step in the PO processing is the closure process. The electronic PO system documents all the stages of PO processing and marks its status as closed once the payout is complete.

Features in a Digital Purchase Order System

Adopting an electronic purchase order system enables businesses to improve efficiency and productivity. How does an electronic purchase order improve operational efficiency?

The Digital purchase order system must have the following features:

Customizable workflow: 

The procurement team must be able to set up rule-based, customizable, dynamic workflows that cater to unique business requirements. The purchase order process workflow must clearly define the flow of actions and decisions in the PO process.

Flexible definition of fields: 

The electronic purchase order software must enable flexible definitions of data fields that cannot be effectively captured using generic field definitions.

Cloud-based access: 

The PO software must be cloud-based in order to enable anytime, anywhere access and safe data storage. Storage and retrieval of purchase order data are supported by a cloud-based PO system.

Centralized data access: 

The electronic PO system must provide centralized access to purchase data via an intuitive, easy-to-use dashboard. Centralized data access enables the procurement team to stay updated on the status of POs.

Omni-channel accessibility: 

Cloud-based electronic purchase order systems support seamless omnichannel access to various online channels. Approvals and reviews of purchase orders and references to purchase data must be possible from anywhere.

Access permissions: 

Purchase data needs to be handled sensitively and safely. Permission to edit and approve POs and view the data should be selectively given. The electronic PO software must provide approval and access permissions based on user-specific permissions and conditional formatting.

Automated 3-Way Matching: 

Validation and matching of PO data against invoice and PR data should be done automatically by the software.

Real-time updates and alerts: 

One of the main reasons why businesses go for PO workflow automation is to eliminate delays and bottlenecks. The approvers and managers need to be updated in real-time about the status of the PO and send automated alerts or notifications of approaching approval deadlines.

Reporting and analytics: 

The purchase order software must enable accurate reporting and documentation. Leadership can make informed business decisions based on the data reports presented by the software.

Cflow from Cavintek is a powerful no-code workflow automation solution that automates key business workflows within no time. The visual form builder makes it a snap to set up purchase order workflows. Cflow comes packed with all the key features expected out of a PO automation software.