Mastering the Purchase Order Process: Why Invoices “Blow Up” & The 9-Step PO Framework
Have you ever had a purchase order (PO) that looked perfectly fine in your system, but when the invoice finally arrived, it was a total disaster?
When an invoice "blows up," the issue is rarely found in the invoice itself. Usually, the problem occurred much earlier in the procurement workflow. While the purchase-to-pay process may look slightly different depending on the type or size of your company, the fundamental territory remains the same.
To help navigate this, I’ve narrowed the supply chain journey down to a 9-step lifecycle framework designed to keep your budget (and sanity) intact.
The Commercial Procurement “Dealer Model”: A Quick Reality Check
For this article, I am going to use the example of a large hotel needing to order a countertop griddle for their kitchen. However, before we dive into each of steps, it is vital to understand how commercial equipment is purchased. Most manufacturers in the industry of commercial kitchen equipment do not sell directly to the public. Customers must use an authorized dealer to purchase what they need. This process is analogous to purchasing a car. If you want to buy a Honda, you can’t go directly to Honda to buy the car. Instead you will have to go through a car dealership. Commercial kitchen equipment works in a similar fashion.
Additionally, large hotels will have a list of pre-approved “dealers” from which they can obtain a quote. Once pricing is approved, the hotel will send their request to the dealer. The dealer will send the purchase order to the vendor, and when ready, the order will ship out.
Understanding this vendor management chain is the first step in identifying where communication might break down.
If you want to see the video, here’s the link:
https://www.youtube.com/watch?v=4rZAsHs9aAk
The 9-Step Standard Framework
Within the procurement workflow, I have narrowed down the process to these nine steps:
1. The Purchase Requisition
The process begins when someone identifies a need. In our hotel example, the chef needs a new countertop griddle because the current one is 15-years old. This internal spend request is the “requisition."
2. Management & Finance Approval
Before a dime is spent, the requisition must obtain approval from the appropriate departments including management and finance. If the new griddle costs $2,000, finance must ensure it fits within the monthly or quarterly budget. Pro Tip: Integrate your requisition with your accounts payable software so the AP team isn't surprised by the expense later.
3. Strategic Sourcing & Picking the Vendor
If you are replacing an older unit, you’ll likely want the same brand. However, you must be careful—a newer model might have different features and possibly a different "footprint" or electrical requirements. Work with your dealer or a local manufacturer’s rep to confirm that the technical specs (voltage, gas type, dimensions) actually fit your space.
4. Securing a Formal Quote
In a volatile market, price increases are common. If you get a quote late in the year and might not be able to purchase the griddle until maybe January, that price might have spiked. Always ask your vendor to hold pricing to protect your profit margins during the approval phase. Some manufactures might offer a 30-day grace period after the price increase takes effect. Again, this must be negotiated ahead of time.
5. Creating the Purchase Order
"The Purchase Order is the center 'X' on a tic-tac-toe board. It is central to everything.”
This is the most critical step in the purchasing cycle. A mistake here creates a ripple effect throughout the entire process. Even with modern ERP software, human input isn't always standardized. You must be meticulous with part numbers, quantities, unit pricing, and especially delivery requirements.
6. PO Submission & Order Acknowledgement
Many companies use a software system to transmit the purchase order to the vendor’s portal. However, emailing a hard copy pdf of the purchase order is quite common.
Once the PO is sent, don't assume it's processed right away. Most likely, a human will be the one to enter your purchase order into their system. To start their day, they likely has 100+ emails and might not get to your order a couple of days or so. Once they do input your order, they will send an Order Acknowledgement (or Sales Confirmation) which should mimic the information on your purchase order.
Crucial Step: Audit the acknowledgement against your original PO. If the price or ship date is wrong on the acknowledgement, fix it now, not when the invoice arrives. This could save hours (even days) of lost time later down the line.
7. Tracking the Order
Almost every carrier provides a tracking or "PRO" number. Use this to monitor the delivery. Many trucking companies will provide contact information for their delivering terminal on their website. You can call them directly and speak with a real human to confirm the arrival window.
8. Receiving & Inventory Inspection
This is where many companies lose money due to shipping errors. When the truck arrives:
Inspect immediately: Check for exterior damage.
Don't be pressured: Drivers want to go back to the delivery terminal with an empty truck. If you suspect damage, you can refuse the shipment or at the very least, note it clearly on the Bill of Lading.
Collect the Packing Slip: This document (usually in a plastic sleeve on the box) shows what was actually delivered.
9. The 3-Way Match Accounting Process
This is the "bread and butter" of internal controls. For Accounts Payable to pay an invoice and close a PO, three things must match perfectly:
The Original PO (What you ordered)
The Packing Slip (What you actually received)
The Invoice (What you were charged)
If these three match, the AP department can pay the bill and close out the PO. Closing the PO quickly is vital to prevent duplicate orders or accrued liabilities in your system.
Conclusion
If you follow these procurement best practices, your Accounts Payable team will be happy, your vendor relationships will improve, and your customer will have the correct equipment it needs. Providing a smooth process for your customer is worth more than any metric you can see on paper.