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Unravelling the Risks: Why Are Some Companies Still Avoiding Purchase Orders

Yesterday, I had a meeting with a company that does not enforce the use of Purchase Orders (POs).

I regularly encounter three main scenarios that shed light on this issue:

  1. No Purchase Orders at all, resulting in manual approval of every invoice before payment.
  2. Stock-related expenses requiring Purchase Orders, while general expenses still rely on manual approval.
  3. Adoption of Purchase Orders for all expenses, including utility bills.

The risks associated with the absence of Purchase Orders are evident, which include:

– Lack of cost control.

– Difficulty in predicting cash flow requirements.

– Vulnerability to fraud.

– Complications in invoice approvals downstream.

– Imposing additional manual tasks on the Finance Team.

On the other hand, employing Purchase Orders for all expenses except general ones still gives rise to problems:

– Limited cost control.

– Continued challenges in predicting cash flow requirements.

– Persistence of fraud vulnerabilities.

– Partial automation of invoice approval.

– Reducing the burden on the Finance Team but potentially creating additional responsibilities within Purchasing.

Requiring Purchase Orders for every purchase, even for regular contracted services like utility bills, yields the following benefits:

– Complete cost control.

– Ease in predicting cash flow.

– Drastic reduction in fraud risks.

– Optimal levels of Accounts Payable Automation.

– Shared responsibilities among Finance, Purchasing, and Line Managers.

From a personal standpoint, I strongly advocate for issuing Purchase Orders for all expenditures. The risks associated with not doing so are too significant, and it is astonishing that many companies still lack insight into their purchase activities.

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