Is using a non purchase order a good idea or not for your business? While non-POs do have some advantages over regular POs, you should still be careful when using them and this article explains why.
In business, some things have to be done quickly. For example, let’s say that your construction company urgently needs some material or the building project you are working on right now stops. Normally, what would happen is something like this: The team manager sees they are out of material and informs his superior about it. His immediate boss then forwards John’s request to his manager, who in turn sends the request to the Finance department. All the while, every person in that chain has to approve the purchase before sending it to the next. This is the basis of a purchase order and the whole process can take a few days, even a week (maybe even longer if your company is using outdated paper orders).
But what happens when you don’t have the time to wait for everyone’s approval? Like in our example with a construction company, waiting for the purchase of urgently needed material (for instance cement) can slow down the entire project and cause your company to lose money. In this case, some companies use something called a “non purchase order” or non-PO.
How Does a Non Purchase Order Work?
A non purchase order is initiated by the employee who needs the material in the first place, rather than the procurement officer. Because of this, it is also often referred to as a “self purchase order and it basically serves to speed up the purchase process since the employee who is making the order only needs an approval from his immediate superior. Once he has it, he can look for a vendor himself and buy what he needs.
Many companies see non purchase orders as a faster way of getting the material they need. For example, construction companies use non-POs.
Why Non Purchase Orders are Not a Good Idea?
On the surface, non-POs look like a very good idea as they can make the order process go much quicker. However, while this may be the case, a non purchase order carriers a lot more disadvantages than advantages.
Here are just a few you should keep in mind when considering self purchase orders:
- No one is truly accountable for them
One of the main points of purchase orders is that the person in charge of them (a procurement officer or a purchase manager) can make sure that he gets the best possible deal from the vendor for his company. That’s not the case with non-POs. When an employee sends a non purchase order, on the other hand, he often does not think about buying at the best price (rather he is concerned with the delivery speed). This can lead to overspending.
- Non purchase orders often lead to fraud
Unfortunately, some employees may use non purchase orders for fraud. For example an employee can make a self purchase order to buy something for himself and not the company. Or, he can make a deal with the vendor to order from him in exchange for some personal benefits.
- It’s harder to check vendors
Without a purchase order, it is nearly impossible for a company to check on the status of its order. Yes, a self purchase order can make the purchase faster, but what about shipment delays or some other problems? SInce there is no purchase manager, there is no way to check the vendor’s performance.
Non-POs are not good for your business. If you want to speed up your company’s purchase process, you should instead use solutions like Purchase Order Plus, which allows you to easily create and control purchase orders with Xero via mobile application.