Purchase order automation: spend you can't see

In September, the marketing budget report shows plenty left for the quarter, so the team signs an event sponsorship. In October, invoices arrive for three purchase orders raised in August. The cost center is over budget before the sponsorship invoice lands.

The three purchase orders were approved and issued. The budget report only counted them once they were invoiced.

The purchase order is the step in procure-to-pay that turns an approved request into a commitment. If the budget doesn’t see the commitment, every spending decision after it is made on old numbers.

What is purchase order automation?

Purchase order automation creates the purchase order from the approved requisition, sends it to the supplier, and records the commitment against the budget when the order is issued. Budget owners see what is committed as well as what has been invoiced.

Where purchase orders and budgets drift

1. The purchase order is retyped from the requisition. Lines, prices and codes are entered again, and the two drift apart.
2. Budgets count invoices. The planning tool reads the ledger, which only moves when an invoice posts.
3. Orders are raised after the fact. Teams buy first and raise the purchase order when the invoice arrives, so the commitment is never visible.
4. Changes don’t reach the budget. An order is cut or cancelled in procurement, and the budget still holds the old figure.
5. Blanket orders hide their balance. A yearly order drawn down by monthly invoices shows its full value or nothing.

What it costs

Budget owners decide on numbers that are weeks old. They overspend when commitments haven’t reached the report, and they hold back spend they could have made when cancelled orders still count against them. At quarter end, finance reconciles commitments by hand to explain the gap.

What to fix first

1. Create the purchase order from the approved requisition. Carry the same lines and codes across, with no retyping.
2. Record the commitment when the order is issued. Write it to the planning tool against the cost center straight away.
3. Send changes and cancellations to the budget. The commitment follows the order’s current value.
4. Release the commitment as invoices post. The budget shows committed, invoiced and remaining, and the three always add up.
5. Flag invoices that arrive with no purchase order. Each one is spend nobody saw coming, and the count shows which teams skip the step.

The guide to building a procure-to-pay integration has the prompts for each step.

Where it fits

The purchase order comes from an approved purchase requisition. It is also the first of the three documents three-way match compares before an invoice is paid.

For the whole procure-to-pay process, from purchase request to paid supplier, see the procure-to-pay process.