Purchase Orders in the UAE: A Guide for Modern Finance Teams
According to Supply & Demand Chain Executive, citing data from APCQ’s Open Standards, top-performing companies approve 98% of purchase orders (POs) electronically. In contrast, bottom-performing companies approved only a little over 50% of POs electronically.
We’re not saying an electronic purchase order process can guarantee top performance or that a company that undertakes manual PO approvals is more likely to underperform. However, this statistic should give you pause.
Electronic purchase orders do increase productivity, improve process efficiency, and minimise human errors. These undoubtedly contribute to better operational performance.
PO workflows are particularly important to finance teams who are in charge of budget matching, approval routing, and invoice matching, so in this article, we talk about the purchase order process in the UAE in the context of financial controls and through the lens of modern finance teams.
Key Takeaways
- A purchase order serves as a legally binding contract between a buyer and a supplier that says what is being bought, at what prices, and on what terms.
- A purchase order originates as an internal requisition request that must go through a set approval workflow.
- Modern expense management software tightens internal controls by automating requisition approvals, ensuring real-time budget visibility, and simplifying invoice matching.
Table of Contents
- What Is a Purchase Order in the UAE?
- PO vs Invoice
- When Should You Use a PO vs a Direct Payment?
- How Does a Purchase Order Protect Businesses?
- How to Create a PO
- The Optimal Purchase Order Process for Modern Finance Teams
- Frequently Asked Questions
- Purchase Orders for Finance Teams
What Is a Purchase Order in the UAE?
A purchase order is a document a buyer issues to a supplier. It contains detailed information about the goods and services the buyer is purchasing from the supplier.
A standard purchase order template in the UAE includes the following information:
- Item name, item identifiers, and item descriptions (including quality requirements)
- Quantities
- Prices (typically pre-agreed upon between the buyer and seller)
- Delivery timelines
- Payment terms
Once the vendor accepts a purchase order, it becomes legally binding to both parties.
PO vs Invoice
A PO is effectively a contract that governs a purchase transaction, while an invoice is a request for payment. They are both parts of the standard business procurement workflow.
The buyer issues the PO, and the supplier accepts it. The supplier delivers the goods and services, and then issues an invoice that the buyer pays.
When Should You Use a PO vs. a Direct Payment?
The decision to use a PO vs. a direct payment depends largely on your company’s policies and standard operating procedures.
A direct payment is a purchase that doesn’t go through the purchase order route. The buyer pays the vendor directly rather than creating a purchase order, getting it approved by finance, sending it out, waiting for the vendor to accept it, getting the goods and services ordered, and only then paying for the PO’s matching invoice.
In general, an organisation’s policies and SOPs stipulate the need for a PO or allow a direct payment based on the nature and amount of the purchase.
Table 1: A checklist for evaluating the need for a PO
How Does a Purchase Order Protect Businesses?
A purchase order protects businesses in the same way any other contract does. Once a vendor accepts it, it becomes like any other legally binding agreement.
It protects the buyer and supplier because it outlines in detail:
- What and how many items the buyer has ordered and the supplier must deliver
- The buyer-stated and supplier-accepted price
- The agreed-upon delivery timeline
- The expected payment method and turnaround
In other words, a purchase order provides a clear record of the buyer’s and seller’s rights and obligations in a specific transaction. This makes determining breaches and faults quite straightforward.
For the supplier, specifically, purchase orders protect against scope creep or additional quality requirements and specifications that the agreed-upon price may not cover.
For the buyer’s part, purchase orders set delivery expectations and facilitate effective internal spend controls, which help finance teams protect the company’s finances from unauthorised, fraudulent or wasteful spending.
How to Create a PO
The process for creating a purchase order in the UAE varies from one organisation to another. However, in general, the purchase order process follows these steps:
Table 2. Steps on how to create a PO
The Optimal Purchase Order Process for Modern Finance Teams
The purchase order process seems simple, but approvals can be complicated, as they can involve multiple personnel and departments.
The finance team, specifically, must ensure the following are in place:
- There is money for the purchase.
- The requisition won’t put the company, the concerned department, and the relevant spending category over their budget.
- The purchase complies with internal policies and regulations.
In line with this, finance managers may struggle with:
- Maintaining real-time spend visibility: Finance personnel need to have real-time insights into the organisation’s expenses so they can approve spending based on actual budget left.
- Preventing overspend: If finance managers don’t have real-time visibility on company, department, and category spending, they will find it harder to prevent overspending.
- Ensuring compliance and managing risk: Preventing fraud and non-compliant spending can be difficult without a single source of real-time insights and data on all company spending.
The solution is to use expense management software that consolidates all the company’s spending and approval workflows into one platform.
Table 3: Software-assisted purchase order process
The software-assisted PO process has the following features that make it better for finance teams:
- Automated expense approvals: Finance teams set approval rules once, and the system will decide whether to approve, deny, or return requisition requests.
- Real-time expense tracking: The software tracks not only PO spending, but also other types of company expenses (pending or otherwise), such as those charged to corporate cards in the UAE and reimbursement requests.
- Real-time budget monitoring and adjustment: Since the system pulls all company spending, including pending and paid invoices, the system tracks the budget in real time. This ensures PO approvals are based on actual available funds and prevents PO approvals that will put the company over budget.
- Automated invoice matching: Once the supplier submits their invoice, the system looks for a matching purchase order and delivery receipt in a three-way matching step that ensures accuracy while maintaining efficiency.
- Effortless integration with accounting systems: Accounting software integration minimises human input errors, as finance teams don’t need to take data from receipts and input them manually into the company’s accounting software.
With expense management software, purchase orders and other company expenses are kept, tracked and managed in one place, allowing finance teams to maintain real-time visibility on corporate spend and to keep a tighter rein on their company’s finances.
Frequently Asked Questions
Who creates a purchase order?
In most UAE businesses, the procurement department creates a purchase order. However, the purchase order process often starts with an employee creating a requisition request. This request moves through an internal approval hierarchy, which typically includes the employee’s direct supervisor, department head, and the finance team. Once approved, it moves to the purchasing department, which generates the purchase order.
Who approves a purchase order?
The head of procurement usually approves a purchase order. However, an internal requisition request typically precedes every purchase order. Requisition requests go through an internal approval workflow, and the finance team typically has to approve a requisition request before it can proceed to procurement for PO generation.
What information should a PO contain?
A solid purchase order template in the UAE should provide detailed information that the buyer and supplier can refer to for alignment on deliverables, pricing, and payment. Specifically, it should include item names and descriptions, quantities, agreed prices, delivery timelines, and payment terms.
What happens after a purchase order is approved?
After a purchase order is approved, the procurement team sends it to the concerned supplier. The supplier reviews it and, if they agree with the terms, they accept it, and the purchase order becomes a binding agreement. The supplier then delivers the goods and services to the buyer and then issues an invoice, and the buyer pays the supplier.
Can a purchase order be changed after approval?
If a purchase order has yet to be sent to a supplier, then it can be changed following internal PO amendment procedures. However, if a purchase order has already been accepted by a supplier, the buyer and supplier must agree on any changes. The existing PO may also have to be cancelled to make way for a new PO.
Purchase Orders for Finance Teams
Purchase orders contain the details of purchase transactions. Since they become legally binding upon supplier acceptance, purchase orders are generated only after a rigorous internal requisition request approval process.
Finance teams are responsible for approving requisition requests. Their job is to ensure a PO will not put the company over its budget and at risk of non-compliance. They’re also in charge of approving payments to supplier invoices.
Manual requisition request reviews, budget checks and invoice matching can be too slow and inefficient. Finance teams, therefore, are better served by an electronic PO approval process.
Qashio enables electronic PO approvals. It tracks all company expenses (including non-PO charges) in real time and continuously updates the budget it uses to evaluate requisition requests. It also automates approvals, expense reporting, and reconciliation, increasing finance teams’ accuracy, efficiency and productivity.
Try Qashio now. Book a demo or contact us today.
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