Creating A Purchase Order System For Your Small Business
Purchase orders might seem like an unnecessary step that just adds to your paperwork load. Many small businesses don’t even use purchase orders, preferring to rely on invoices from the seller to document orders. After all, why go to the trouble of generating a record of your purchase request when the seller’s going to send you something with similar information?
But what happens when your supplier sends the wrong item? Or they send too many or too few of the item you ordered? Without a record of your original purchase, getting these problems sorted out is often time-consuming. Sometimes you can’t fix the issue at all.
Ignoring purchase orders can work short-term and while your business stays small. But in the long-term and as your company starts to grow, documenting your purchases becomes more and more important. Every company needs to make purchases. And the more purchases you make, the more vital having a good purchasing system becomes.
Purchase orders give you a way to track purchases and protect your business legally in the event of a problem with the seller. They can be a definite asset to your small business. But if you start using purchase orders without a reliable purchasing system in place, they can also become quite a hassle. That’s why it’s so important to start out with a purchase order system that works for you. This article will help you do just that.
Do Small Businesses Use Purchase Orders?
Purchase orders are a document buyers send to sellers containing a request for an order. Once a seller accepts the purchase order, it serves as a legal agreement between the buyer and seller. Typically, the purchase order includes a detailed list of the type, quantity, and price of items being ordered.
Very small businesses can usually get away with not using purchase orders, but as your business grows POs become more important. The main difference between a purchase order system in a large company and a small business is how many people are involved. Larger companies work on a larger scale. There’s a much wider range of employees involved in procurement and purchasing, which means there are more opportunities for something to go wrong.
Large companies need a purchase order system that can track purchasing across the company. It helps them prevent fraud, control employee purchasing, and avoid duplicate purchases. Depending on the number of employees in your small business, you might not need all those features. But you’ll still reap the benefits of using purchase orders no matter how small your company is.
Why Should I Use Purchase Orders?
Before you go to the effort of implementing a purchase order system, you probably want to know more about how they can help your business. Here are five great reasons for using purchase orders:
In a business of any size, it’s easy for communication to break down enough for two people to place orders for the same thing. A purchase order system helps you avoid duplicate orders since it’s easy to pull up records for recent purchases.
Since purchase orders are a legal agreement between buyers and sellers, they can protect you from price increases and any legal disputes that arise regarding the order. And if the price changes between the time you submitted your purchase order and the time of delivery, you’ll have a record of the agreed-upon price.
Tracking incoming orders by matching them to purchase orders in your record-keeping system helps simplify inventory management. Also, good purchasing records are an asset in dealing with audits. Some types of audits also require proof that a manager approved procurement decisions, and purchase orders are the best documentation for that.
Purchase orders make it easier to look up repeat orders of similar or identical items, so you can track what your business purchased when, and for how much. Accurate, easy-to-access records about how much your company spends are also valuable for budgeting.
For more information, check out our article 10 Important Ways That Using Purchase Orders Benefits Your Company.
What’s A Purchase Order System?
“Purchase order system” simply refers to your business’ process for managing purchase orders. Some businesses start with a manual paper-based system because it seems easier. But in the long run, keeping up with all the associated paperwork becomes difficult.
A single purchase can involve records of quotes, order acknowledgments, miscellaneous notes, packing slips and invoices in addition to the purchase order. On top of that, the more paper-based records you accumulate the harder they are to keep track of. That’s why more and more companies, big and small, are transitioning to digital, automated procurement.
The best purchase order systems make generating purchase orders quick and simple. They’ll also track the associated paperwork for each order and match relevant documents together. And the advantages of an automated purchase order system don’t stop there. They simplify record keeping and protect records from loss, damage, or being accidentally destroyed. You’ll also cut back on processing expenses and on the amount of paper used.
How Do I Use POs In My Business?
At this point, you might be wondering why you’d want a fancy purchase order system. If all you need from a PO is a document that states what you want to purchase, why not just type it up in Microsoft Word? However, if you want to use purchase orders most effectively, then setting up a purchasing system – preferably an automated or partly automated one – is the way to go.
An automated system makes it easy to generate unique purchase order numbers for each PO document. Then you can look-up the number in the system and match it to corresponding invoices. This is also going to help in accounts payable since you’ll be able to quickly check that each invoice matches a purchase order before paying it.
A purchase order system also helps streamline the purchasing process. For businesses large enough to have multiple employees involved in purchasing, having a centralized system ensures no one places duplicate orders for the same items. And if you want to designate one employee as purchasing manager, the system makes it easy for others to submit purchase requests for approval.
Another way a purchasing system helps your business is by managing vendors. A reliable automation system helps log and track vendor information. It also makes it easy for you to submit orders to your vendors directly through the software.
Which Purchase Order System Should I Use?
The best purchase order systems for a small business will scale to your exact needs. You don’t need to pay for a huge, complicated system designed to work on a large scale. But you also don’t want to get stuck with a system that can’t keep up as you grow. Cloud-based systems, like NextProcess’ Purchase Order Module, are designed to scale to your needs and pricing is based on your company’s use.
Once you have an automated purchase order system, using POs will be simple. Automation PO software also stores information that’s searchable and updates in real-time. You can check your purchase records anywhere, anytime on your computer, tablet, or smartphone. It also keeps your information secure and only authorized users can access the records.
If you’re implementing a new purchase order system, start out right with easy-to-use automation software tailored to your business. Contact us and we’ll give you a free demonstration of NextProcess’ purchase order system so you can see first-hand how our user-friendly system will work for you. And if you decide to go ahead with our purchasing system, we’ll be there with you through every step of the set-up process to make certain our software works perfectly for your company.