A requisition order is an internal document that an employee uses to formally request the purchase of goods or services for their department. It functions as the initial step in a company’s procurement process, signaling a need to the finance or purchasing department. This formal request must gain approval from a manager before it can move forward. Once approved, the requisition triggers the creation of a purchase order, which is then sent to an external vendor to acquire the items.
The Purpose of a Requisition Order
The primary function of a requisition order is to establish formal control over company spending. By requiring employees to document and justify their needs, organizations can prevent unauthorized or unnecessary purchases, ensuring that funds are allocated responsibly. This structured approach is important as a company grows, making it impractical for every employee to make purchases independently.
This process also provides benefits for financial management and accountability. Each requisition serves as a data point for budget tracking, allowing departments to monitor their expenditures against their allocated funds. These documents create a clear and traceable audit trail for financial audits and internal reviews, as it demonstrates that every purchase was properly vetted and approved according to company policy.
Key Components of a Requisition Order
A standard requisition order, whether a physical form or a digital entry, contains several fields to ensure the request is clear and can be properly evaluated. These components provide the details for managers and procurement teams to understand the request’s context, necessity, and financial impact. A complete requisition includes the following information:
- Requester and Department Information: This section identifies who is making the request and which department’s budget the expense will be charged to. It includes the employee’s name, title, and department to ensure accountability and proper routing for approval.
- Item Description and Quantity: The employee must provide a detailed description of the goods or services needed. Specificity is important to avoid confusion; for instance, instead of “new software,” a request might specify “Cybersecurity Software Suite, 15 licenses.” The quantity of each item is also clearly stated.
- Vendor Information: While the procurement department makes the final decision on suppliers, the requester can suggest a preferred vendor. This section may include the vendor’s name, contact information, and any quotes that have been obtained, which can be helpful if the requester has identified favorable pricing.
- Price and Budget Details: The requisition must include the estimated cost of the items, including unit price and the total amount. A budget code is often required, linking the expense directly to a specific line item in the department’s budget to ensure funds are available.
- Justification: The employee explains why the purchase is necessary for business operations. A justification might state that new uniforms are needed for incoming hires or that upgraded software is required to protect company data, helping management determine if it is a worthwhile expense.
The Requisition Process
The requisition process follows a structured workflow to ensure proper oversight. The process begins when an employee identifies a business need, such as depleted office supplies or new equipment. The employee then completes a requisition form, either on paper or through a digital system, detailing all the required components.
Once the form is filled out, it is submitted to the appropriate authority for review, which is the employee’s direct manager or department head. This individual is responsible for verifying that the request is legitimate, necessary for operations, and falls within the department’s budget. If the manager approves the request, they provide a signature or digital authorization.
The approved requisition is then forwarded to the company’s procurement or finance department. This team conducts a final review for completeness and may source vendors to find the best price. The procurement department then converts the approved request into an external purchase order to acquire the items from a supplier.
Requisition Order vs Purchase Order
Understanding the distinction between a requisition order and a purchase order is important for the procurement process. The primary difference lies in their origin and function. A requisition order is an internal document an employee uses to ask for permission to make a purchase. A purchase order is an external document sent from the buyer to a vendor to officially place an order.
Their legal standing also sets them apart. A requisition has no contractual power, as it is a request that circulates within the company. A purchase order, once accepted by the seller, becomes a legally binding contract. It outlines the specific terms of the sale, including item descriptions, quantities, prices, delivery dates, and payment terms.
The timing of each document within the procurement workflow is also distinct. The requisition always comes first, initiating the process by establishing a need and securing internal approval. The purchase order is created only after the requisition has been fully approved, representing the official start of a commercial transaction with an outside supplier.