What Is the Purchase Order Management Process? A Clear Guide to Doing It Right

The purchase order management process is the series of steps businesses follow to create, track, and manage purchase orders from initiation to fulfillment. It involves identifying the need for goods, creating a purchase order, sending it to the supplier, receiving the goods, and finalizing payment.

It’s not just about sending POs and hoping for the best; it’s about establishing a structured, trackable workflow that connects procurement, finance, and vendors in one clear, coordinated loop.

In this guide, we’ll break down exactly what the process involves, how to set it up effectively, and the smart practices that can turn your PO chaos into a well-oiled system.

Purchase Order: Definition and Example

A purchase order (PO) is a written request from a buyer to a supplier, outlining the specific goods or services being ordered, along with the agreed price, quantity, and delivery details. 

Once accepted by the supplier, the PO becomes a binding contract that protects both parties, providing clarity on the terms of the purchase. It also helps businesses manage orders, maintain control over inventory, and track spending.

Mandatory Elements of a Purchase Order

These are essential for the PO to function as a clear and legally valid document:

• PO Number and date
• Buyer Information
• Supplier Information
• Item Details: item details or SKU, quantity, unit price, and total price per line
• Delivery Date or Lead Time
• Delivery Location‍
• Payment Terms (net 30, net 60, or upon delivery)
• Total Order Value

Optional (But Useful) Elements of a Purchase Order

These aren’t legally required, but they improve clarity, communication, and workflow:

• Tax or VAT information, if applicable, especially for international or regulated transactions.
• Shipping instructions or method, e.g., standard vs. expedited, courier preference, etc.
• Billing Address (if different from delivery address). Especially important for larger companies with separate departments.
• Terms & conditions or legal clauses. These could be standard clauses around returns, liability, etc.
• Internal notes or department codes. Helpful for internal tracking or budgeting purposes.
• Contact person on both sides. Who to reach out to in case of questions or issues.
• Discounts or special pricing terms. Any negotiated or promotional discounts applied to the order.
• Attachments. Specs, contracts, or supporting documents.

Typical Purchase Order Management Workflow

An effective purchase order process typically follows these seven key stages:

1. Purchase Request
   An employee identifies a need for products, materials, or services and submits a purchase request or requisition to the purchasing or finance team.
   
2. Approval Process
   The request goes through one or more approval layers, depending on company policy and budget thresholds.
   
3. PO Creation
   Once approved, a purchase order is created with details such as item descriptions, quantities, pricing, delivery dates, and terms.
   
4. PO sent to Supplier
   The purchase order is shared with the vendor for confirmation. Once accepted, it becomes a legally binding agreement.
   
5. Goods Delivery & Inspection
   The supplier delivers the goods, which are checked for accuracy, quality, and completeness against the PO.
   
6. Invoice Matching & Payment
   The invoice from the supplier is matched to the PO and delivery receipt. If everything aligns, payment is processed.
   
7. Recordkeeping & Reporting
   The entire transaction is documented and stored for auditing, forecasting, and budget tracking.

Possible Pitfalls while managing purchase orders

Even well-intentioned businesses can stumble in their PO processes. Here are the most common challenges:

1. Manual Errors & Data Entry Isues
When using spreadsheets or paper, it's easy to mistype prices, forget approvals, or duplicate orders, leading to costly mistakes.

2. Lack of Visibility
Without a centralized system, it's hard to track order status, delivery timelines, or budget usage in real time.

3. Approval Bottlenecks
Delays in approvals (especially when handled via email or physical signatures) can slow down procurement and disrupt operations.

4. Missed Deliveries or Overdue Payments
Without automated reminders or status updates, teams might miss critical follow-ups, resulting in stockouts or late fees.

5. No Audit Trail
In manual systems, tracing back issues or understanding who approved what (and when) can be nearly impossible.

What’s the best way to keep track of purchase orders?

In an era where automation is the trend, small businesses can still succeed by mastering manual purchase order management with these time-tested purchase order management practices. 

For Very Small Businesses: Mastering Manual Methods

In an era where automation is the trend, small businesses with limited resources can still succeed by mastering manual purchase order management with these time-tested practices:

Centralize Your Purchase Orders

Keep all purchase orders in one dedicated binder or digital folder. This creates your very own "command center" without the bells and whistles of automation. 

Establish a Reliable Tracking System

Use spreadsheets or simple ledger books to record every order with details like date, vendor, and amount; consistency is your best friend here. A well-structured manual tracking system not only shines in clarity but also lets you flex your spreadsheet muscles.

Standardize Your Procedures

Create a clear, written process for generating, approving, and filing purchase orders. Think of it as your very own recipe for budget-friendly success. Standardization reduces errors and maximizes your employees’ time.

For Growing Businesses: Invest in Purchase Order Software

While the aforementioned practices are sustainable for a micro-business with a few hundred SKUs in inventory, there’s nothing like a PO software to streamline your purchasing and replenishment. You might want to start off by checking if your accounting software offers any PO management features whatsoever.

Does QuickBooks have a PO system?

‍QuickBooks Online allows users to create, send, and manage purchase orders. You can generate POs, track their status, and convert them into bills once the items are received. However, this feature is available only in the Plus and Advanced plans; it's not included in the Simple Start or Essentials plans.

QuickBooks Online provides basic inventory tracking features, including the ability to set reorder points for inventory items. When the quantity on hand drops to or below the reorder point, QuickBooks can notify you that it's time to reorder. ​

However, QuickBooks Online does not automatically generate purchase orders when inventory levels fall below the reorder point. Users must manually create POs based on the inventory alerts.

How does a purchase order management software system work?

An automated PO system considers your business’s purchasing needs based on seasonality, available inventory, and sales data to inform and automate PO generation, tracking, and management.

HandiFox Online has a built-in purchasing system with automated replenishment. These are some of the powerful features you can use to optimize your workflows:

Pre-set reorder points and desired quantity on hand

Inventory levels that are on point aren’t something you figure out overnight. It takes months of sales metrics analysis, and, of course, knowing your market’s demand. Once you get them worked out, you can pre-set reorder points and desired quantity on hand values for every single item across all the inventory storage sites you have.

Low inventory tracking

Software like HandiFox Online features widgets or notifications to alert users to low stock, reflecting the app’s calculations based on the preset replenishment triggers.

Barcoding

HandiFox Online offers mobile scanning and connects to dedicated barcode scanners to read and record products’ barcodes. You can add items to a PO by simply scanning them in, eliminating tedious manual data entry.

When you get a new delivery from a supplier, scan the items' barcodes to see if you got what you ordered. If multiple orders from one vendor need receiving, you can combine several POs and do batch receiving. This saves substantial operational time on heavy-volume days.

Units of Measure

If you’re purchasing, storing, and selling items in different units of measure, setting up what  UoM is relevant for each context is essential. HandiFox Online will do all necessary conversations if you need to change UoM on the go.

Automatic replenishment suggestions

PO apps calculate your average sales, predict future replenishment needs, factoring in your reorder triggers. As a result, users get automated replenishment suggestions they can lean on. 

Preferred Vendor

Choose the Preferred and Alternative Vendors for each product. When it’s time to create a purchase order, the system already knows who your top supplier is for each product. If your preferred supplier is out of stock, or delayed, the system immediately shows you other vetted options. 

Purchasing reports

HandiFox provides purchasing reports that detail how products by different vendors have been performing. It won’t hurt to know who your most ‘profitable’ suppliers are. 

Bin locations

Bin locations are one of the organizational pillars for your inventory tracking and purchase management. If your SKUs have bin addresses, it takes significantly less time to locate them and put on POs as well as take them in and put away for storage upon delivery.

Multi-Currency Support

Multi-currency support lets you issue purchase orders directly in your vendor's currency, reducing conversion errors and miscommunication with foreign suppliers. This feature is invaluable for businesses with international supply chains.

Why use purchase order automation software?

One of the major time-drains is having procurement departments figure out what, how much, and when to reorder. Aided by a system that connects the dots between inventory, sales, and purchasing data, the purchasing team is able to: 

Better inform their replenishment decisions

• Save hours of time on manual data entry
• Manage finances more wisely with accurate forecasting
• Save warehouse space
• Avoid low stock and stockouts
• Optimize product allocation across warehouses
• Break down organizational silos by becoming cohesive with other departments

Get started by taking a free trial to learn how automated PO control can streamline your PO management without uprooting your current workflows.