Purchase Requisition: What It Is And Why It Matters In Procurement?

Whether it is office supplies, consumables, raw material, or other products for the workplace, the different departments cannot directly purchase things from vendors. There is a separate purchase department in charge of finding vendors, overseeing the purchase process and handing the invoices to accounts. This is done to prevent the chances of mismanagement and fraud. 

What Is A Purchase Requisition

When an employee of an organization needs to order something on behalf of the organization, they need a formal document. This document is called the purchase requisition. It informs the purchasing department of the need for said product or service and makes them initiate the procurement process

The purchasing requisition process involves making the application, getting it approved and tracking all the purchase requests made in an organization. The purchasing requisition procedure includes transferring the requisitions to the people in charge, informing the finance and accounts departments and working with the purchase departments to see that the request is fulfilled. 

How Purchase Requisition Is Important To Procurement

A purchase requisition is essential to streamline the finances and optimize spending in an organization. Here are several ways in which purchase requisitions impact procurement.

Prevent Fraud: Perhaps, the most important task of purchasing requests is to avoid dark purchasing. Fraudsters target businesses with flaws in their procurement systems and send out fake invoices from suppliers or vendors they use. Some employees may order supplies and other consumables from company vendors for their personal use. These types of fraud are prevented by the use of purchase requisition. 

Better Communication: Purchasing orders are proof that a certain request was made and delivered. And since the details of the request are clearly written down, there is no scope for conflict, whether internally or between the organization and the vendors, in the future. 

Avoid Duplicate Orders: Sometimes requests for the same products or services can be made innocuously by two different heads of a department. Purchase requisitions also help the organizations steer clear of duplicate orders. As one person or department approves and makes the purchases, such scenarios are avoided.

Legitimate Purchases: If there is no proper purchasing requisition procedure, the employees may overspend or make requests for supplies already in the organization’s inventory. So a purchasing requisition process helps control costs by encouraging the company to make only legitimate purchases.

Centralization Of Purchases: By making one department in-charge of approving and purchasing the requests made, procurement becomes a lot easier since purchases are bundled. It also increases the negotiating power of the organization and helps them get better prices from suppliers. 

Creates A Trail For Auditing: Purchase requisitions are not just written request forms, but they are legal proof that a certain item is requested, approved and purchased. This is helpful during the audit of an organization’s accounts and finances. 

Purchasing Requisition Process: A Step By Step Guide

The purchasing requisition procedure may differ slightly depending on the organization. But the basic steps involved remain the same. 

Step 1: Submitting a Request (Purchase Requisition)

The person who starts the purchase requisition process is the requester. The requester can be any employee of the organization. But they are usually the heads of departments who identify the need for certain items or services in the company (Eg. stationery, software, repairs, etc.). 

The requester has to fill out the purchase requisition form carefully outlining what is needed and why it is needed. In some companies, this is done manually through a paper form, while others use e-procurement services and have the employees fill in their requests through a separate software or email. 

Since the purchase requisition cannot move forward without the signature showing the approval of the person in charge, it is often recommended to have the form online as it makes things quicker.

Step 2: Screening of the Request

Once the requester fills out the form, the next step in the purchasing requisition procedure is to transfer it to the purchasing department. The person in charge there (most likely the purchasing agent) will then review the form. They will check the legitimacy of the request and decide if the particular item is needed or already in the organization’s inventory and no purchase is needed.

Sometimes if the purchase requisition is not filled-in properly, the purchasing agent will fill out the correct details. Or they can transfer the form back to the requester, asking them to make the changes. If everything is in order, the agent transfers the requisition for further approval.

In some cases and smaller organizations, the purchasing agents themselves decide the validity of the request and create a purchase order based on the requisition. 

Step 3: Reviewing the Purchase Requisition

In certain cases, the department head or manager of the requester or the financial team is obliged to review the purchase requisition. This is done to ensure that the requester does not exceed their spending limit. Depending on this situation, the request can either be rejected and sent back to the requester, or it can be approved.

After the scrutiny and approval by the department head, finance team and others in the purchase requisition workflow, the purchase requisition turns into the purchase order. A purchase order generally contains information like the quantities of the items required and the prices (which are negotiated beforehand with the vendor). 

This order is then sent to the supplier, and if accepted, it becomes legally binding. The supplier will then send their services or products to the organization’s inventory team or warehouse at a particular date. 

There are people present to conduct a cross-check between the purchase request, order and invoice. It is done to assure that only the items ordered are received. Finally, the invoice for the supplier is entered into the accounts payable. It is later credited as per the terms and conditions agreed by both parties.

Ordinarily, the purchasing requisition process relies on manual input involving paper forms, excel sheets, or emails. But it is recommended to have a purchase request software in place to streamline an organization’s procurement process. Outdated purchase requisition methods can lead to maverick spending, which sidesteps the pre-established procurement practices and significantly affects the bottom line. 

Purchase requisition when done right ctan greatly streamline an organization's procurement process and minimize mismanagement issues. Don't forget to browse through our other blogs on procurement best practices.