Purchase Order Automation: How You Can Benefit From It?
Discover the benefits of purchase order automation and how it can streamline your business operations.
April 26, 2023
Legal agreements are key to preventing misunderstandings or disputes in every business transaction. When you're dealing with vendors or suppliers, a purchase order will be one of the most crucial legal agreements. It outlines the terms of the agreement between the buyer and the seller, which must be met within a set timeframe.
But, manually processing purchase orders comes with many challenges, including errors, delays, and wasted resources. That's where purchase order automation comes in.
In this article, we'll explore the benefits of purchase order automation and how solutions like FormX can automate data extraction from purchase orders. But first, we will discuss the purchase order workflow so you understand the process and give an overview of the challenges faced when processing orders manually. By the end of this post, you'll clearly understand why purchasing order automation software is a game-changer for your business.
The Purchase Order Workflow
Generally, the purchase order workflow begins when an employee within a company requests goods or services and ends when the buyer pays the supplier or vendor. Here's a detailed breakdown of each step involved in the complete purchase order workflow:
Purchase order request: An employee identifies a need for goods or services and submits a request to make that purchase. A purchase order request is not legally binding; its only purpose is to get permission to purchase something.
Creating a purchase order: Once the manager or department head approves the purchase request, a purchase order is created. It contains information such as the number of items a company intends to buy, the delivery schedule, the payment terms, and the PO number.
Purchase order review and approval by the manager: A department head, manager, or even senior management will review the PO before it is sent to the supplier. They might amend it, add new details, or make other changes before approving it.
Sending the purchase order to the supplier: If the internal team approves the PO, the next step is to send it to the supplier. The supplier should acknowledge that they received the PO and confirm whether they can meet the requirements outlined in it.
Delivery of goods and services by the supplier: The supplier will typically start working on a purchase order immediately. They make sure to deliver whatever goods or services were requested within the timeframe specified in the purchase order. They can deliver the products or services physically or digitally, depending on the nature of what you ordered.
Receiving an invoice from the supplier: If you are the buyer, the supplier will send you an invoice after delivering products or rendering services to your business. An invoice is a statement of the money you owe the supplier for the goods or services supplied to you. The invoice's details should match the details on the purchase order, such as quantity and price.
Matching the original purchase order with the invoice: At this stage, your finance team or an accounts payable (AP) department will ensure that everything in the invoice matches what was outlined in the PO. They should compare details such as quantity and price before approving the invoice for payment. This step reduces your financial risks as it helps you identify any discrepancies between what was ordered and what was supplied.
Paying the supplier: After the invoice is approved, you can now pay your supplier. Your payment terms should be outlined in the PO and agreed upon by both parties before this step. Depending on how you make payments, you may need to issue a check, initiate an electronic transfer, or use another form of payment.
File invoice records: The last step is keeping all the records related to the particular purchase order for easy retrieval. Safely store all the documents, including the PO, invoices, and delivery receipts. These documents will be necessary during auditing, as you need to prove that you paid the right amounts at the right time.
The Challenges of Manual Purchase Order Processing
If you're still manually handling all the different steps of your purchase order workflow, you're likely losing time and money. A manual process exposes you to the following issues:
Processing a purchase order manually can take days or weeks and involve a lot of paperwork. This lengthy process affects your business's efficiency as it delays the delivery of goods and services. A lengthier process also hinders you from taking advantage of discounts, early payment incentives, and other benefits.
Processing a PO manually involves keying data into computer systems and handling other forms of paperwork. This manual data input increases the chances of human error during the purchase order process. For instance, you can misspell a supplier's name, enter the wrong product quantity, or mistakenly enter other details that could lead to significant financial losses.
Manual processing of purchase orders can lead to higher costs in different areas. For instance, the cost of labor for the process is usually high, as you need more people and resources to manage it. Your business will also incur additional costs, such as late payment fees.
Damaged Relationships with Suppliers
Your suppliers help you keep your business running, so it's only right that you maintain the best relationship you can with them. But manual processing of purchase orders can make it difficult to maintain a healthy relationship with them.
Issues like late payments caused by errors or manual delays can damage relationships with your suppliers, leading to higher prices, supply shortages, and other problems. Furthermore, you may find that some reliable suppliers are no longer willing to do business with you.
Benefits of Purchase Order Automation
Shifting to purchase order process automation will supercharge your purchase order workflow and help avoid the challenges mentioned above. Some of the benefits of using purchase order automation software include:
Digitizing and filing your purchase orders in an automated system will make it easier to keep your records safe. These records contain sensitive information, such as payment details, so you should ensure that only those with permission can view them.
Automated PO systems have advanced security features that make securing orders from unauthorized access easy. For instance, purchase order automation software may have multi-factor authentication and encryption capabilities to help keep your data secure.
Improved Accuracy and Less Risk of Data Loss
Automated data entry eliminates the need for manual data entry and reduces the chances of errors in your purchase orders. Furthermore, automated systems store orders electronically, so there will be less risk of data loss or damage compared to when using paper purchase orders.
When using manual processing, your purchase order can get lost or damaged in transit. For instance, the PO can be misplaced, get wet, or be torn during delivery to the supplier. With automated PO systems, you will send the PO electronically via email or other secure methods, reducing the chances of damage to crucial details included in it.
The accuracy will continue even when making payments because the PO automation software can integrate with ePayment software. The integration will optimize your existing payment processes by automatically sending an invoice to the payment system after approval. This eliminates manual data entry, increasing accuracy and saving you time.
Purchase order process automation will increase our business's efficiency in various ways. To begin with, automation will streamline the purchase order workflow, from making an order to filing invoices. Streamlining the workflow is possible because some automated PO systems have features like automatic approval routing and pre-defined templates that can make it easier to create purchase orders quickly and accurately.
With such a system, the relevant departments can approve invoices quickly, as the approvers will receive notifications when an invoice is ready for review. This means you can make early payments and enjoy any discounts that may be applicable.
PO automation also increases efficiency by reducing purchase-to-pay cycle errors. These errors can cause inefficiencies through process delays and rework. With automation, your employees will be more productive because they will spend less time on manual tasks and more time on value-generating activities.
Automation will be more cost-effective because you will need fewer staff to manage your purchase orders. You can transfer these cost-saving benefits to your customers, which may help you win more business.
How FormX Can Automate Purchase Order Processing
Manually processing purchase and sales orders is both time-consuming and error-prone. Fortunately, FormX can automate the processing of these documents, making it easy to extract accurate data from them.
FormX is an AI-driven data extraction software that transforms information contained in physical documents into organized digital information. As such, the software can extract crucial data, such as the list of products and expected delivery dates, from a purchase order.
The best thing about this Machine Learning & OCR (Optical Character Recognition) tool is that it's easy to set up. You can use it in any situation that requires you to start typing information requested from another source into your system.
If you’re considering automating your purchase order processing, start by trying FormX for free to see the difference it can make or you can contact us today to learn more how we can help you come up with an automated PO workflow.