For most accounts payable departments, getting a purchase order (PO) approval is time-consuming.
A study shows that 60% of finance professionals‘ time is consumed by tasks such as collecting bill details and chasing approvals. It is due to ineffective workflow which causes businesses to lose valuable time and money.
Thankfully, this article will provide actionable steps to help you streamline the approval procedures.
Understanding Purchase Order Approval Workflow
Before delving into strategies for optimizing purchase order approvals, it’s crucial to gain a comprehensive understanding of the entire workflow, starting from creating a purchase order to final acceptance by the vendor. The purchase order approval process typically involves the following steps:
Identifying Requirements and Request Submission
The process begins with identifying the need for a product or service. The requesting department submits a procurement request to the purchasing department.
Reviewing Requests and Selecting Suppliers
The purchasing department reviews the validation request. Then suppliers are selected, often through a Request for Proposal (RFP) process.
Authorizing Purchase
Authorization involves one or more levels depending on the purchase size. Small requests may be approved by the purchase manager, while larger ones require scrutiny through budget control and approval from senior management.
Preparing the Purchase Order
Upon approval, the purchasing department prepares the purchase order. The PO includes buyer and vendor details, PO number, product specifications, delivery terms, and payment information.
Assessing the PO by Vendor
The vendor, upon receiving the PO, checks for any outstanding dues (for existing buyers) and assesses the buyer’s payment capacity (for new customers).
Acknowledging the PO by Vendor
If the PO information is accurate, the supplier approves it by signing the document. The approved PO becomes a legally binding contract between the buyer and the seller.
Why is the manual PO approval process time-consuming?
Let’s take a look at a typical day in the Accounts Payable department where the team manually handles the purchase orders approval process.
- First, the company creates a purchase quote (PQ) using Google Forms. The problem is, that this tool doesn’t provide information regarding who the approvers are and when the PQ is approved.
- Once the PQ is ready, an accountant will manually convert it into a purchase order (PO).
- After that, they log into their accounting software, search for the bill, and match it with the PO manually. This process is significantly prone to errors and time-consuming.
- Then, they submit the PO and chase the approvers through long email chains.
- When the bill finally arrives, they have to go over the same approval loop.
How is the manual PO approval process affecting your organization?
If your organization still implements the manual process for approvals, some potential problems may arise:
- High OpEx. With so many repetitive and time-intensive tasks to do, finance teams can end up working longer than intended, resulting in higher labor costs. According to research, companies that do not use software can spend an average of $6.70 per invoice processed. In contrast, automation services help reduce the amount to $2.36.
- Costly errors. Human errors are more likely to occur in manual approval processes, potentially leading to duplicated POs and payments. Resolving errors and discrepancies later in the process requires additional time and resources thus affecting the reconciliation process.
- Late payments. Since the approval process takes so long, third-party payments will get postponed. As 89% of businesses feel that late payments can slow down their growth, manual processes can lead to unhappy vendors and suppliers.
- Cost of Audit. Manual processes lack robust tracking and reporting capabilities, reducing visibility into the status of purchase orders and approval workflows. In the absence of proper tracking, audits become more complex and time-consuming, incurring additional audit-related costs.
- Costs of Paper and Storage. Physical document handling, printing, and storage contribute to additional costs in terms of paper, ink, and physical storage space.
- Security Concerns. Manual processes may pose security risks related to document handling and storage, potentially leading to data breaches or unauthorized access.
How to streamline the approvals process?
Thankfully, there is a way to manage your accounts payable and streamline the purchase order approval process.
By using accounts payable automation software, you can:
Generate any types of purchase quotes
Many automation tools these days provide a digital PQ maker for different use cases, from freelance to vendor payments.
This technology removes the need for spreadsheets and Google Forms. It also gives the PQ creator more freedom to track the PQ status.
Automatically convert the purchase quote into a purchase order
Moreover, modern software helps accountants match the purchase order with the bill through a single search. The system can also flag errors, helping them identify unmatched records and make adjustments.
Easily set custom approval workflows with the right stakeholders
Most automation tools provide a centralized workspace where finance teams can invite other departments within their organization.
For large companies, this feature enables effective collaboration between different teams. This is because they can work on the same projects, identify potential bottlenecks, and solve problems together in one place.
A Step Forward: Automate the PO Approval Process
Automating the PO approval process offers several advantages:
Time Efficiency: In contrast to the heavy paperwork involved in manual PO approval, automated systems provide a centralized repository for all relevant data. This accessibility streamlines cross-referencing and approvals, resulting in increased business efficiency and reduced processing time.
Error Reduction: Manual processes are susceptible to human errors, but digital solutions utilize pre-built templates or customizable forms to capture necessary data with minimal human intervention. This reduces the likelihood of errors in the approval process.
Paperless Operations: By leveraging digitization, minimize the reliance on manual paperwork. With digital data availability, printing documents is no longer necessary. Purchase requests can be easily returned for adjustments, notifications can be configured for various approval levels, and final approvals can be granted without the need for physical paperwork.
Efficient Invoice Matching: Purchase order approvals often involve compliance checks, including invoice matching. Access to all pertinent documents in a digital database simplifies the scrutiny process, helping to prevent maverick spending and detect potential vendor fraud.
Centralized Data Management: Cloud-based automation facilitates global internal data sharing across various locations. Management can access data instantly across time zones, enabling faster approvals and enhancing internal and external collaboration.
At Peakflo, our software provides several automation features to ease your work, including:
- PQ generation. Any employee can easily submit a purchase quote simply by entering the required information, adding the purchased items, and applying taxes accordingly.
- PQ to PO auto-conversion & send to the vendor. Once approved by all stakeholders, our system will automatically convert the PQ into a PO and send it to the vendor.
- PO matching. When receiving bills from vendors, you can easily scan the documents using our Optical Character Recognition (OCR) technology. After that, the system will automatically match the bills with the purchase orders and inform you if the amount is incorrect.
- Approval workflow. With Peakflo, you can personalize workflows based on the company’s approval procedures. Relevant stakeholders, from business approvers to accounting and tax checkers, can monitor, track, and edit purchase orders in real-time.
So, are you ready to get faster approvals? If it’s a yes, start your free trial now!
