How to Keep Track of Purchase Orders
Master the essential process of managing business expenditures. Achieve complete visibility and control from initial commitment to final payment.
A purchase order (PO) is a formal document issued by a buyer to a seller, indicating the types, quantities, and agreed-upon prices for products or services. Once accepted by the seller, it becomes a legally binding contract. Tracking purchase orders helps businesses maintain financial control, manage budgets, and ensure operational efficiency in procurement.
Key Information for Purchase Order Tracking
Effective purchase order tracking relies on capturing specific data points for each PO. Each order receives a unique PO number. Vendor details, including the supplier’s name, address, and contact information, are recorded. The order date provides a timestamp for the transaction.
Detailed descriptions of items or services, quantities, and unit prices are included. The total cost of the order, including any applicable taxes or fees, is also documented.
The required delivery date and shipping information, such as the delivery address and preferred shipping method, help manage logistics. The PO’s current status (e.g., pending, approved, shipped, received, invoiced, or paid) provides real-time visibility. Identifying the requestor or department originating the purchase ensures accountability and helps with internal cost allocation.
Establishing a Purchase Order Tracking System
Manual tracking methods can involve physical logs or binders. A manual register includes columns for the PO number, order date, vendor name, item description, quantity, unit price, total cost, and notes on delivery and payment status. This approach requires consistent updates.
Spreadsheet tracking offers a digital alternative for small to medium-sized businesses. A PO tracking spreadsheet should include fields for vendor contact details, shipping information, payment terms, and the columns found in a manual log. Data can be organized by vendor, department, or status.
Dedicated software solutions, such as accounting software, Enterprise Resource Planning (ERP) systems, or specialized PO software, offer advanced tracking. These systems automate PO creation, approval workflows, and status updates, increasing efficiency. When selecting software, look for customizable fields, real-time reporting, integration with accounts payable, and centralized document storage. Some systems offer PunchOut catalogs, integrating directly with vendor product listings.
Executing the Purchase Order Tracking Workflow
A structured workflow ensures consistent monitoring of POs. The process begins with PO creation and approval, where a new purchase order is logged into the system. The PO’s status is updated to “pending approval,” and once authorized, it moves to “approved.”
After approval, the order is placed with the vendor, and its status is updated to “issued” or “sent.” Confirmation from the vendor is then tracked to ensure they have received and accepted the order.
Upon receiving goods or services, items are marked as “received” in the tracking system. Any discrepancies are noted. A goods receipt note (GRN) is generated and linked to the corresponding PO.
The final step involves matching and reconciliation, often called the “3-way match.” This process compares the purchase order, vendor invoice, and receiving report (GRN). If all details match, the PO status is updated to “invoiced” or “ready for payment.” This matching helps prevent overpayments and detect fraudulent invoices.
Connecting Purchase Orders to Financial Management
PO tracking supports financial management. It facilitates accurate invoice verification before payment. By comparing the vendor invoice against the original purchase order and receiving report through a three-way match, businesses confirm they are only paying for ordered and received goods and services. This mitigates financial risks like duplicate invoices or incorrect charges.
PO tracking allows for precise budget control and expense management. Purchase orders represent a commitment of funds, providing real-time visibility into committed spending. This helps prevent budget overruns by ensuring purchases align with allocated budgets. Financial teams can monitor cash flow more effectively, as PO data outlines future expenses.
Well-tracked purchase orders create a clear audit trail for financial records and audits. Each PO, with associated documents like receiving reports and invoices, provides evidence of expenditures, demonstrating compliance.
Aggregated PO data can be leveraged for reporting and analysis, providing insights for future procurement planning. Businesses can analyze spending patterns, evaluate vendor performance, and identify opportunities for cost savings or process improvements. This allows for more informed decision-making regarding future purchases and supplier relationships.