Overview of a Purchase Order Processing System and D365 Business Central

by | June 24, 2020 | Dynamics 365 Business Central

The purchase order process is a solid platform to manage the entire purchasing and requisition and ultimate acquisition from start to finish for any business endeavor. Especially for businesses that depend on supply chain management to maintain effective inventory levels and match cash flow with the requisition processes itself.

At times, it may seem like an extra level of paperwork, but each step of the process is uniquely designed to automate and control this very important aspect.

What is a Purchase Order?

A purchase order (PO) is a document issued by a buyer to the seller, providing the information about the details of the order. That is the quantity, type of product, prices, etc.

So, what is the difference between a purchase order and an actual invoice?

The difference is in the timing, as a purchase order (as the name suggests) is used at the start of the process to form an agreement between supplier and customer and lay out the details of exactly what the supplier will be required to deliver.

An invoice is generated at the end of the process by the supplier, using the information from the purchase order to request the agreed payment from the customer.

What Does a Purchase Order Contain?

Here are some of the essentials of a completed purchase order.

• PO number (which is then referenced in the invoice to connect the two documents, something that is particularly important for Leah and the accounting department).
• Contact information for the customer
• Payment information
• Description and quantity of goods/services ordered
• Invoice and delivery address (if different)

What is the Purchase Order Process?

There are several stages to the overall purchase order process. These can vary from company to company, but the ones listed below are most common:

Purchase Requisition is created – This takes place within a company and typically the person responsible for the purchase requests approval from leadership to continue the process.

Purchase order is sent – Assuming the first stage doesn’t end with a firm ‘no’, the purchase order is created and sent to the supplier, detailing what is wanted and providing the information the supplier will need when creating their invoice.

Supplier approves purchase order – Again, this assumes that the supplier is happy with the purchase order they have received. Once they have reviewed it they will acknowledge receipt and acceptance of the order.

Buyer records purchase order – Now that the binding contract has been agreed, the purchasing company will officially record the purchase order and the supplier will start to do what is required of them to fulfill the order.

What is the Purchase Order Process Used for?

The purchase order process has many purposes beyond the straightforward answer of acting as the initial agreement of what work will be completed by the supplier.

Here are some of the ways that using purchase orders will benefit your business:

Budgeting

Particularly in companies where there are constant streams of income and expenditure flowing through the finance departments, purchase orders are essential to ensure that there are no nasty surprises when invoices come in.

Without the purchase order process, an invoice for $100,000 could arrive, demanding payment within 30 days, and the finance department could have had no warning that it was due, making it difficult to find that money in time to pay it.

With a purchase order, they will have been able to budget for it in advance, and that works the other way around too, as the finance staff at the suppliers have been able to know that payment will be coming in even before the invoice has been sent.

Managing Orders & Expectations

As well as being able to forecast what the budgets will be, the purchase order process can help suppliers track incoming orders and manage inventory levels with knowledge of what is expected.

Purchase orders are a set in stone way of agreeing on these expectations at both ends of the supply workflow, so the suppliers know what they will be supplying and can prove that it is what was requested if there are any disputes.

Or, of course, vice versa.

Evidence for Financial Audits and Internal Control Reviews

In some smaller businesses, orders can be placed and recorded on scraps of paper, which might work fine for their internal processes, but is not the kind of solid and substantial evidence needed for a financial audit.

Using purchase orders demonstrates a healthy flow of orders and income or sensibly managed expenditure and is an excellent way to prove to auditors, banks, and tax agencies that your business is doing things the right way.

Making the Purchase Order Process with Dynamics 365 Business Central Run Smoothly

Like any business process, there are always ways in which the purchase order process could be sped up or made more efficient – and the best way to do that is through business process automation.

During the purchase of goods and services, companies can generate a lot of paperwork, including:

• Requisitions
• Purchase orders
• Quotes
• Acknowledgements
• Advice slips
• Receipts
• Bills of Lading
• Invoices

If this is all being done manually, that is a lot of paperwork that needs to be generated, recorded, distributed and filed away, and also offers plenty of opportunities for human error to creep in and cause chaos.

The physical paperwork also has the potential (and tendency) to disappear, leaving gaps in the workflow and evidence that can cause problems at audit time or in disputes. Automating the purchase order process minimizes the possibility of these issues.

Using Microsoft Dynamics Business Central 365 means that it is easy to track where the process is up to and to refer to the purchase order quickly when required. It is more efficient, more accountable, quicker, and safer.

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