Small businesses, especially those that are bootstrapped, often begin operations with a limited budget. The smaller the budget, the more controlling costs becomes essential to ensuring the long-term financial health of the organisation. One of the best ways to reduce and track spending, while encouraging teams to buy responsibly is to develop an internal purchasing process that starts with requisitions for new purchases.
What Is a Purchase Requisition Form?
The purchase requisition form, also known as a purchase request or a PR, is an internal document staff uses to request the organisation purchase goods or services. The requestor uses the form to describe the purchase and why it’s needed. Then, the form is sent to another person, such as a department head, to review and approve the purchase. If the requisition is not approved, the approver should explain why the purchase is denied. If approved, the requisition becomes a purchase order that is then sent to the vendor to formally request the products or services be delivered to the business.
“Because the requisition process is internal, it is meant to be tailored to each business and their specific needs. As such, there may be variations from the standard depending on the company. The beauty is you can develop the purchase requisition workflow that works best for your business.”
The Typical Purchase Requisition Process
The typical process looks something like this:
- An employee requires a new laptop, so she obtains the requisition form, or in the case of e-procurement, logs into the system and creates the request with an electronic form. She describes the laptop she wants – and possibly selects one from a vendor catalogue in the procurement system. Once complete, she sends the requisition to her department head for approval.
- Once the approver signs the form, it may go to the company’s IT department to allow verification of a few details. The IT department staff must be sure the computer is compatible with all the company’s systems and meets the necessary data security standards.
- Once IT has approved the item on the requisition, or suggested an acceptable alternative, the requisition will go to the procurement department. That department will source the computer from various retailers and choose the one that offers the best price – unless there’s a contract in place with a specific vendor that provides a better deal. The purchasing department will convert the requisition to a purchase order, which is then sent to the vendor to formally request the item and initiates the purchase.
Benefits of a Formal Requisition Process
The conventional line of thinking is that small businesses don’t need something like this, just because they’re small enough to keep track of everything on their own. But there are many benefits to be realised from this approach, regardless of an organisation’s size.
- Getting the best deal: The purchasing officer develops relationships with vendors and can secure the best possible price on a variety of products. The typical staff member may not realise these deals are in place, unknowingly costing the company more money.
- Transparency: Employees and supervisors are required to justify their purchase, which reduces the potential for unnecessary purchases. It also helps by minimising spending too much on expensive items when there’s a more affordable comparable product that meets the company’s needs.
- Functionality and compatibility: Some purchases, if left without review and approval, especially when it comes to electronics and software, may not be compatible with the current systems and security measures that are in place at the company. Requiring the IT department head to review and approve purchases of that nature after initial department manager approval can reduce or eliminate the need to return a product upon discovery that it’s not the best fit for the company’s needs.
Considerations When Developing Your Requisitions Process
You may decide you don’t want your team to use purchase requisition forms for all purchases, simply to cut down on time spent approving them. For instance, you can determine that purchases under $100 that aren’t software, computer systems, or peripherals like keyboards or headsets, can be approved and ordered directly by the department head. This simplifies the process for things like office supplies. You’re free to customise the approval process however you feel will be the most effective and efficient for your organisation.
Using a formal requisition process may be overkill for businesses with only one or two employees, but as your business grows, tracking everything in Excel may not be the most efficient way to handle company purchases. It’s always a good idea to review the purchasing process and implement changes as deemed necessary since purchase requisitions play an important role in maintaining the overall budget.
PurchaseControl enables you to create a formal purchasing process that starts with purchase requisitions from anyone in your organisation.Find Out How