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4 Min. Read

What Is a Purchase Requisition & Why Is It Important?

What Is a Purchase Requisition & Why Is It Important?

If you own a small business you may have heard the term purchase requisition. 

It’s common to mistake purchase requisitions for purchase orders. While they are completely different documents, they are used in the same process. This makes it an entirely understandable mistake to make. 

But what actually is a purchase requisition?

We’ll break down what a purchase requisition is and why it’s important for your business. We'll also look into how it differs from a purchase order. 

Here’s What We’ll Cover:

What Is a Purchase Requisition?

Why Is a Purchase Requisition Important?

How Is a Purchase Order Different?

The Benefits of Using Purchase Requisitions

Key Takeaways

What Is a Purchase Requisition?

A purchase requisition form is an internal, formal document used as part of the purchasing process. Employees use this to inform department managers about the resources that they need.

So if an employee needs something, they will make a formal request to the purchasing department through a requisition form. It's also sent to the finance team so they can check if it’s a necessary expenditure.

The department managers will then go through an approval process. Once completed, they will use this document to notify the purchasing department so that they can start the purchasing process. 

Why Is a Purchase Requisition Important?

Every company always has a need for goods and services. It’s a continuous process of constantly needing to resupply and restock. 

The purchase requisition therefore plays an important role in the process of buying within any business. 

If any employee could purchase from a supplier, the business would be open to fraud. That’s why purchase requisitions are a key tool to prevent any sort of fraud from taking place. 

They are also a great way to make sure that the business gets value for their money. 

Throughout the entire process, the document goes through many departments. This means a number of department heads must sign off on its accuracy. This in turn helps ensure that no mistakes are made and gives any form of fraud a much higher chance of being noticed. 

It also helps reduce the chances of over-ordering or ordering something that the company cannot fit into its budget. 

By using purchase requisitions as proof, it becomes easy for any purchased goods to be traced. Businesses tend to require that every purchase request must be made through the purchasing department. 

This allows it to become easy to organize and streamline the entire procurement process. 

Therefore, companies aren’t wasting extra time, money or energy.

How Is a Purchase Order Different?

A purchase order and purchase requisition forms are two separate key documents used in the same procurement process.

A purchase order is an external document that is issued by the purchasing department. This is done after a purchase requisition, an internal document, has been made and once it has passed the approval process. 

Purchase orders are then sent from the buyer to the supplier with a request for an order. They are also a legally binding document. 

So whereas any employee can issue a purchase requisition, only the procurement department can issue a purchase order. 

The Benefits of Using Purchase Requisitions

We’ve already discussed that purchase requisitions help prevent fraud. But there are several other benefits to issuing purchase requisitions. 

To avoid duplicate orders: 

For large organizations, purchase requisitions can keep track of what’s needed, who needs it and when they need it. 

They are useful for financial audits: 

The correct managers need to approve the business's purchasing decisions. Purchase requisitions are proof of this and therefore useful for any financial audit. 

They prevent miscommunication: 

These documents require every aspect of an order to be written down and filed. This means businesses can avoid any confusion that may arise in the future. 

They help protect the company: 

Purchase requisitions can serve as legal documentation. This means if there are any issues over what was ordered or the agreed-upon price, these documents can be used as proof. 

Key Takeaways

Purchase requisitions are a great way for your finance department to keep a track of your purchases. They also offer a way to protect your business against any form of legal action. 

They are key in preventing fraud and any wrongdoing. They also help reduce needless expenses, and are a handy tool when it comes to audits and tax returns. 

Are you looking for more business advice on everything from starting a new business to new business practices? 

Head over to our FreshBooks Resource Guide.