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When To Require A Purchase Order?

What dollar amount threshold is needed before a PO is required to be generated? If my AP person got her wish there would be a requirement for a PO for every purchase but that would be not practical and a huge drain on labor to generate especially for $25 order. Our expenses after removing labor run about $10M - $12M a year. What thresholds do you have? When do your require a PO and when do you not? Any comments on why your reasoning?

Answers

Topic Expert
Aaron Codak
Title: Client Services Finance manager, North A..
Company: Kantar Finance Services (Shared Service ..
LinkedIn Profile
(Client Services Finance manager, North Americ, Kantar Finance Services (Shared Service Center)) |

We currently operate a shared service center within Kantar for all operating units within North America. Our PO process is to require a PO for anything $250 and over. Exceptions are utilities, legal invoices, freight/shipping (FedEx, UPS), temporary staffing agencies and others.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I agree with Aaron. The threshold might be different for different organizations, and regardless of threshold, all invoices should be approved by someone who is not entering them into the A/P system.

As CFO, assuming you sign the checks, you'll get a feel of what's normal and what isn't. My controller and staff entered the A/P's, but I signed the checks. They knew which invoices to include and then I arbitrarily choose some invoices each check run to audit their procedures.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

I will approach this from the other end.......

1. What other systems or processes do you have in purchasing items? (Petty Cash, online purchases, etc)
2. What types of expenses do you have (manufacturing/production, office supplies, etc) ?

Although not the usual approach I take and not answering your question directly, I think that one option is to look at it from the other end. What other ways does the company have in purchasing items.....and work back from there. What ever items are left out of the process(es) either through dollar amount or classification/type, should be P.O.

Sachin Sharma
Title: Helping Mid Market CFO's control cost th..
Company: ProcureDesk
LinkedIn Profile
(Helping Mid Market CFO's control cost through effective procurement, ProcureDesk) |

Some great suggestions by Wayne and Emerson. There are many benefits of having purchase orders including compliance, granular visibility and fraud prevention.But if you have high volume then manual process could be a burden for the employees. I have detailed some related points in the following blog post.

http://www.procuredesk.com/automate-purchasing-process/

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