Purchase Order Management is an internal accounting function used by businesses to acquire inventory and resources. Purchase orders are authorized documents used to purchase resources, with larger companies having more defined processes. A purchasing department may be responsible for sourcing assets and the accounting department reviews invoices and issues payments.
Purchase Order Management is an internal corporate accounting function. Businesses use a purchasing process to acquire inventory, operating resources, and other items needed to produce goods or services. Purchase orders are an internal document that provides specific authorization to purchase different resources. Larger companies usually have a more defined purchase order process than smaller companies. Large companies create purchase order management policies to ensure that employees follow standard operating procedures for this process.
Business owners generally designate purchase order authority for certain individuals in the business. Business owners, directors, and executive-level managers often allow operational executives to approve purchase orders for their department. Purchase orders for significant dollar amounts, such as several thousand dollars, are the only purchase orders that require approval from an executive. Owners and executive managers delegate this ability to ensure that business operations can continue without excessive oversight.
Businesses may use a purchase order management system that requires a review of several vendors or vendors. This requirement guarantees the company the lowest possible cost for economic resources. Manufacturing, manufacturing, and construction companies commonly use a bid/proposal purchase order system. A bid/proposal system allows vendors and suppliers to present specific information related to economic resource purchases to a business. Suppliers and suppliers will indicate the cost of each item, the delivery process available and the time required to complete all the services listed in the offer / proposal. This process relieves the company from doing copious amounts of footwork related to acquiring economic resources.
Large companies often have a purchasing department responsible solely for sourcing assets. This department takes the authorized purchase order and sends it to the vendor or supplier. The purchasing department checks the availability of the goods to ensure that the seller can complete all contractual obligations on the purchase order. Follow-up issues or PO changes can be sent to the Operations Manager for approval. The purchasing department is simply an intermediary function that manages the ordering process in the purchase order management system.
Once the goods or services are received or completed, the vendors and suppliers will send the company an invoice to request payment. This starts the final process of the purchase order management system. The invoice is reviewed by the company’s accounting department. In the accounting department, payables are responsible for reviewing purchase order paperwork and issuing payments. Many companies use a three-way matching system. Accounts payable clerks will review the internal purchase order against the received paperwork and vendor invoices. Companies issue payments only when all three documents match. Accounting clerks will enter the information into the company’s accounting software, print a check, and have an authorized signatory sign the issue payment to the seller.
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