Purchase Requisition Vs Purchase Order: Key Differences Explained

Ever wondered what separates a request for office supplies from a binding agreement with a vendor?

The answer, in large part, comes down to two critical documents, the purchase requisition and the purchase order. Though related to one another in the procurement process, they can be remarkably different in purpose and audience.

Here's a breakdown to shed light on these distinct functions:

Let's imagine if a department needs new software. The purchase requisition steps in as an internal document. Its role is to generate a request form within the company that goes to the purchasing department stating that the software is being requested, the estimated price of the software, and why it must be purchased. It will set in motion an internal approval process that will verify if the amount of the request to purchase the software is suitably budgeted.

A purchase requisition typically includes the name of the requesting department, the purchaser’s location and mailing address, the exact quantity of items needed, a description of the items, the legal name of the outside supplier, and the expected price of the purchase and delivery date.

The PO is an external document, however.

Once the requisition is approved, the purchasing department issues a PO to send to the chosen vendor. This formal document transforms the request into a factually binding contract with all the agreed-upon details about quantity, price, date of delivery and terms of payment. A typical purchase order includes the name of the purchasing office, a list of items to be purchased, specified payment terms, invoicing instructions, the shipping address, and a unique purchase order number.

Purchase Requisition Vs Purchase Order: The Key Differences

1. Persons Involved

The requisition primarily involves internal players like department heads who submit the request and the purchasing department that reviews and approves it. On the other hand, the PO institutionalizes a contractual relationship between two parties outside the company: your company and the supplier you want to do business with.

2. Binding Power

The main difference is their legal force. A requisition carries no force whatsoever. It is an internal request. The PO, on the other hand, is a contract. As soon as the vendor accepts, it obliges the vendor and the person or company requesting the goods to live up to each side of the contract.

3. Focus

A requisition is internally directed toward justification and approval. While a purchase order is externally directed toward creating agreements with an external vendor.

How P2P Software Helps with Purchase Orders and Purchase Requisitions

Procure-to-pay (P2P) software tracks and stores the entire purchase order life cycle of businesses. This includes purchase requisitions and purchase orders.

Here is how purchase order software helps businesses with both – purchase requisitions and purchase orders:

Purchase Requisitions

Automation:

P2P puts the requisition creation process on automatic. Users enter requests for goods and services in the system, removing the need to fill out paper forms.

Approval Workflows:

Approval workflows are automated flows that require approvals before purchase orders can be raised. You can set up automated approval workflows based on predefined criteria like cost or department. This ensures proper authorization and prevents maverick spending.

Catalog Integration:

P2P software can integrate with supplier catalogs allowing you to essentially find items to add to your requisition by searching a drop-down box.

Purchase Orders

Automatic Generation:

The P2P system automatically generates a PO based on authorized requisitions. This eliminates chances of errors – saving time.

Supplier Management:

Maintains supplier information and contracts, keeping track of cost and price for ordering purposes.

Tracking and Visibility:

Makes purchase order status visible to everyone involved in their creation and delivery.

Also Read: Purchase Order Automation: How to Get it Right

To Sum Up

Explaining the difference between purchase requisition and purchase order is crucial in procurement management.

While purchase requisitions are internal requests specifying requirements for goods or services, purchase orders are legally binding documents that formalize transactions with external vendors.

Differences between them are parties involved, legal impact and main purpose.

P2P software helps automate the process by creating a requisition, customizing an approval workflow, and even generating POs to optimize compliance, speed, cost and efficiency of procurement processes.

Explore GEP’s AI-first procure-to-pay software.