My experience with purchase orders (PO) have been an interesting one. There are some companies that use them to their design, and that design is an integral part of their organization. There are others that think they need a purchase order process when they don’t and others that use a purchase order process that wish they didn’t.
A Little Background
If you are a frequent reader you will know that most of my experience is with middle market companies. With middle market companies questions and misuse of the purchase order seems to be higher than in larger companies. I believe that this is because of a lack of centralized purchasing or a dedicated procurement department in mid to small companies.
Here Is What I Know
Purchase orders have been around a long time. Traditionally purchase orders have been a great way of tracking outstanding expense for the accrual process. PO’s have also served as a way to calculate cost of goods manufactured and sold.
Outside of those reasons, I have found two very broad reasons to implement a purchase order process.
- Dictating Purchases
- Pre-Approval
As I wrote these are two very broad reasons to implement a purchase order process. Purchase orders do a good job of controlling what people buy and when those purchases happen.
The Next Few Days
Over the next few days, I am going to write about each of the above reason for a purchase order process, but the point (you are welcome) is going to culminate in these two reasons being the key to Accounts Payable Automation. Stay tuned!
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