What is a Purchase Requisition?

Different departments in businesses require materials and goods from time to time for ongoing operations. From conventional office supplies to machinery, raw materials, or services, businesses need to purchase these goods and services for smooth operations. 

However, depending upon several factors, such as the size of the business, the manner in which procurement is handled is often different. In smaller businesses, firms allow line managers to authorize purchases and buy from suppliers directly. 

But, as the company grows, this no longer seems like a viable option. It greatly increases the risk of expense fraud, and also increases expenses overall since there are no protocols in effect. That’s where a purchase requisition comes into play. 

What Is a Purchase Requisition?

A purchase requisition, also known as a purchase requisition form, is a formal document that employees are required to fill out within the organization if they want to buy goods or services on the company’s behalf. 

When an employee fills out a purchase requisition, they’re not buying anything just yet. This is the first step in the formal procurement process, and is used to seek approval from the procurement department. 

When a need arises for goods or services, the employee fills out the purchase requisition, which is then submitted to the employee’s manager, or the purchasing department (if the organization has one). 

This document helps establish a strong audit trail for procurement and mitigates the risk of fraudulent purchases. In most cases, purchase departments only require purchase requisition forms if the purchase is over a specific dollar amount. This amount varies by industry business size.

What’s Included on the Purchase Requisition? 

There are several key elements that are included on the purchase requisition form. Most requisition forms include the following:

The purchase requisition is an internal document, so it never really leaves the organization. Since they’re only used to seek permission, the purchase requisition is not a legally binding document and does not constitute a contract. 

Why Are Purchase Requisitions Important?

Purchase requisitions are very important for growing businesses. Here are some of the main reasons why they are so critical in the procurement process.

  1. They Formalize the Procurement Process

The purchase requisition is the first step in the procurement process and puts into writing what the department requires. The procurement department decides whether to authorize or reject the purchase based on how well the requisition form is filled out. 

In case of any issues with the form, the purchase requisition can be used to clarify any sort of miscommunication that may arise. More importantly, since a specific department or individual will be in charge of all procurement, it’ll become easier to manage purchases. Many businesses now use P2P automation to streamline their procurement processes.

Without purchase requisitions, managers from any department can authorize purchases. But, with a procurement manager, things become easier. Procurement managers can bundle purchases together to gain more favorable discounts from specific vendors and negotiate terms to mitigate costs. 

  1. An Effective Internal Control 

There is always a risk of fraud in growing organizations. If an organization does not have any internal controls in place, this risk increases drastically. For instance, employees may order goods or services for personal use, while using the company’s funds. 

Purchase requisition forms are reviewed by several employees before they are approved. The need for the goods or services is verified and the amount required is also checked for accuracy. For starters, the department manager is likely to review the document before it is sent to the procurement department. 

The procurement department then verifies all details before issuing a purchase order. This is an effective tool for establishing internal controls, as it provides evidence that a purchase request was made from a specific department. This also helps with accountability when organizational spend is reviewed. 

  1. Protection From Fraud

The implementation of internal controls helps organizations reduce fraud considerably. Purchase requisitions make it more difficult for employees to engage in fraud. They can’t tap into the company’s capital accounts for making personal purchases. 

The document serves as proof that a request for ordering goods was made. Internal auditors can always review and countercheck these documents in case there is a discrepancy in the organization’s assets. 

  1. Avoiding Duplicate Orders

Since only one person or department is in charge of handling purchases, it’s much easier to keep track orders. This way, in case two people from the department place the same order, the procurement department can reject one. 

It helps businesses reduce the risk of placing duplicate orders, which can then result in overstocking. 

  1. Tracking Consumption Patterns

Organizations can review the total number of purchase requisitions from different departments to track consumption patterns. This is important as it allows 

The Purchase Requisition Workflow

There are several steps involved in the procurement workflow, as shown below: 

  1. An employee identifies the need for goods and services.
  2. They fill out all the details, including the vendor’s name, the price, and the goods or services they require. 
  3. The document is reviewed by the department manager before being sent to the procurement department.
  4. The procurement department reviews the purchase requisition and verifies the details before approving or denying the request.
  5. If approved, the procurement department issues a purchase order to the suggested vendor.  

Purchase Requisitions vs. Purchase Orders

It’s important to understand that purchase requisitions are different from purchase orders. Here are the key differences between the two:

ParticularsPurchase OrderPurchase Requisition
OriginProcurement department/ managerAny employee within the company
PurposePlacing an orderRequest for goods or services
RecipientVendor(s)Procurement department/ manager
Time of sendingWhen purchase requisitions are approved When a need for goods or services arises
Nature of documentExternal, legally bindingInternal, not legally binding

As mentioned above, purchase requisitions do not immediately result in the confirmation of purchase. They need to be approved first. Purchase orders are issued after a purchase requisition is approved, and it’s an external document confirming the company’s commitment to pay for the requested goods or services. A purchase order number is also added on the document. 

Automate Procurement for Better Tracking and Accountability

As you can see, manually processing and handling purchase requisitions and purchase orders is not only time-consuming, but greatly increases the risk of fraud or misrepresentation. Instead, using a Procure-to-Pay software can be very beneficial.

SoftCo’s Procure-to-Pay fully automates the entire procurement process, from tracking requisitions to issuing purchase orders, receiving and matching invoices, and managing vendor contracts. The built-in Matching Engine fully automates every element of invoice matching, and offers much greater control over all operational spend.