How does the Purchase Ordering System Work?

Creating Purchase Orders on your Suppliers.

Written By Gerry Mckeown ()

Updated at July 26th, 2022

1. Introduction

The Purchase Ordering System, consisting of three modules - Purchase Order Entry, Goods Receipts Entry and Invoice production - is, or can be, integrated with the Inventory Management system, either fully in the context of quantities management, or partially in the context of non-stocked goods and services.   It can also be optionally implemented with Purchasing Approval and/or Budget Holders (How do I Implement Purchasing Approval with Budget Holders?” and “How do I Implement Purchasing Approval for Non-Budget Holders?”). 

Not all Orders need to be entered into the system:  Small low value Items (e.g. Stationery, Refreshments, etc.) can be processed through the Batch Entry facility (“How does the Batch Purchase Invoice Work?”) without the necessity of a preceding Purchase Order.   This, however, is a security risk as it bypasses the Ordering process and, if it’s a concern, then you should remove the Batch Invoicing option from your Menus (or severely restrict its usage) - thereby requiring all Invoice processing to be carried out using the “Item Invoices” Menu option.  Refer to Section 3. of the Article “How do I use the Client Administration System Layer to Add End Users and Control their Permissions?which details the control of the Menu Options which users can or cannot access.

Even so the system will still permit Item Invoices to be entered for things like Electricity, Water, Rent, etc., without the necessity of a preceding Purchase Order.  You can, however, enforce the entry of Purchase Orders against selected Suppliers (Vendors) which, if implemented, ensures that no Invoices from that Supplier (Vendor) can be processed without an Order having first been entered, with the Invoice subsequently undergoing an Invoice/Order Matching process.  In the Invoice/Order matching process, if the Invoice exactly matches the Order in respect of all Lines, Quantities and Prices, then the Invoice is automatically processed without the need for entering it into the system.

So, to introduce the strictest possible control over your Purchasing System, limit the access to the Batch Entry facility, enforce Order Entry against most Suppliers (Vendors) and ensure that only authorised personnel have access to the Supplier (Vendor) Master record maintenance function.

The Purchase Ordering facility has a number of pre-requisites.  These include the Supplier (Vendor) Master table, the Inventory Master table (Stock or Non-Stock), and various Code tables including General Ledger Codes, Taxes and Currencies. 

Delete

2. Purchase Order Entry

To enter a new Purchase Order click on the highlighted area “New Order” as shown here;

This will bring up the following screen;

The Purchase Order No. is controlled by a setting in the Company Details and Settings program.  If “auto-numbering” is set to “on”, then the P.O. Number will be auto-generated as in this example here. Otherwise you’ll have to supply a unique (no duplicates) Order No.

Next, choose the Supplier (Vendor) from the Drop Down provided which will retrieve and populate his details on the Order Header.  N.B.  On entering the Supplier Code or Name, if you receive an immediate message saying "This Account is over the Assigned Credit Limit of xxxx.xx by xxxx.xx" you should not proceed with the Order as you will not subsequently be able to "Save" it. Instead, you can choose another Supplier, or, leave the Order, sort out the Credit Limit issue and return to it later. 

The Order Date is defaulted to today’s date, but you can change it using the Drop Down.

The External Reference is a reference number of your own which you supply to help you keep track of your Orders.  It could, for example, be the Supplier’s (Vendors) Inventory Code

The Expected Delivery Date is also defaulted to today’s date but you can change it using the Drop Down.  It is used to define which Orders are “Overdue” for delivery.

The Use ACC VAT (Tax) Code and its accompanying Drop Down indicate that this Rate of VAT (Tax) is to be used on all Lines for this Order instead of the VAT (Tax) Codes associated with the Items.  When used it is a default and can be over-ridden on any line.

Some Suppliers (Vendors) always deliver to the same part of the Company. Defaulted from the Supplier (Vendor) Master record where it is an optional entry, this is the default “Department” for this Supplier (Vendor).  A BI Code is a sub-division of the company and its uses and setup are detailed in the article “How do I Implement Extended Business Analysis?”.  It is not a mandatory entry as you may not wish to use Extended Business Analysis or your Order might consist of several BI Codes.  If there is an entry here, then it will be presented on each line of the Order where it can be re-directed to another BI Code if required.  However, if you are also using Purchase Order approval, then note that only one BI Code is permitted per Order.

Supplier (Vendor) Area is defaulted from the Supplier’s (Vendors) Master record and can be over-ridden here.

Requester is an optional field from the accompanying Drop Down and is the identity of the person ordering the goods and who will ultimately receive them.

Supplier (Vendor) Contact is the Primary Contact from the Supplier’s (Vendors) Master record.

Turning to the lower part of the screen which deals with the entry of the Order Lines, you can now temporarily remove the Supplier (Vendor) Detail in the upper half of the screen by clicking “Display Lines Only”.   Click again to restore.  Similarly, the button highlighted in the Red Circle can be used to display/un-display details from the Inventory file for the Product nominated on that Order Line.

The Item is retrieved from the Inventory Product file using the Drop Down together with its Description and default General Ledger Posting Code which can be changed if required.

The GL Account Code is inherited from the Supplier’s (Vendors) Master record (if any) and then it is over-ridden by the General Ledger Account Code from the Product file.  It can be over-ridden after presentation using the Drop Down or by keying in a General Ledger Code.

If you are using Extended Business Analysis then you will be asked to supply a BI Code in this next field – although it might be inherited from the Order Header, in which case it can be over-ridden here.

Next key in the Quantity of Item required from the Supplier (Vendor).

The Unit Price is taken from the “Last Cost” field on the Inventory Master record and may be over-ridden here.

The VAT (Tax) Rate is either inherited from the Order Header (which in turn is inherited from the Supplier’s (Vendors) Master record) or from the VAT (Tax) Rate associated with this Item on the Inventory file.  In both cases it is a default rate and can be over-ridden here.

If there is a Discount Percentage on the Supplier’ (Vendor) record then this will be presented and applied.  You can either accept this Rate and Calculation or you can put in a fixed amount in the Disc. Amount field and the system will work out the percentage. 

Finally, you can add a Note to each Order Line.

Exchange Rate.  If the Supplier is a Foreign Currency Supplier (Vendor) then, at the start of the Order, you will be presented with an Exchange Rate from the Currency table at the lower end of the screen, which you can over-ride if necessary.

In this instance, the Order Lines costs will be calculated taking account of the Exchange Rates.  The totals for both Currencies (Base and Foreign Currency) are shown at the bottom of the Order.

On the second Tab of the Order Entry screen you can modify the Delivery Details inherited from the Supplier’s Master record and also the Discount Percentage which, if you’ve already entered all your Order Lines, will be applied retrospectively.   And here you can also add a Note to appear on the Supplier’s (Vendors) Order;

The third Tab on the Order Entry screen allows you to add internal Notes to the Order;

Before you “Save” or “Save & Print” you have the opportunity to correct or modify any of the information previously entered.

The Order is printed in .PDF form where it can be emailed to the Supplier (Vendor). 

After "Saving", this is what will happen:  If you have not implemented Order Approval here (by leaving this Tick Box unchecked);

or, if this Supplier is exempt from Order approval here (when this Tick Box is Checked);

the Order's Status will be "Reserved" and the word "Receive" will be placed in the Receive Column in the Grid awaiting Deliveries from the Supplier;

 If Purchasing Approval is implemented, then the Grid will look like this;

In this instance you will not be able to "Receive" Orders until such time as this Order is approved.

Delete

3. Purchase Order Amendment

You can recall the Order at any time before it is fully delivered in order to amend it and/or re-issue it;

Click on the Order No. as shown to recall the Order;

You can now Delete Lines by selecting the line and hold down F8, Add new ones, change Quantities and Prices, Vat Rates, add Line Notes and so on.  You can also amend General Ledger Codes and BI Codes.  Click on the Circle (highlighted) or in the Item Code Drop Down to carry out these actions on any or all of the lines.

Or you can “Cancel” the Order which will remove it from the system.

Alternatively, you can “Duplicate” the Order, by selecting the line and holding down F6, which will create a replica to which you can now add a new “External Ref.” and then modify it (including adding new Order Lines) as you require before “Saving” and emailing the new Revised Order.   The old Order will still remain in the system as it was.

You can also Print or Reprint the Order from here and you can also email the Order to your Supplier (Vendor) from here also.  “Actions” will also allow you to Cancel the Order or Duplicate it.

Delete

4. Viewing, Editing or Closing Orders

All Orders, once reserved, are saved on the Purchase Orders screen so you have a complete history over time of all Purchase orders entered by all users.

To view or edit an existing order go to the Purchases > Purchase Orders screen imply click on the Number of the order you wish to view or edit (which is highlighted in ‘blue’).

If the Order has already been fully delivered and, therefore, ready to be invoiced you will notice that in the left column labelled "Receive" it will not have the word "Receive" against it and therefore has already been fully delivered. In this case, when you open the order, all fields in the order window will be ‘greyed out’ and cannot be edited. Otherwise, you can open the order, make any required changes and click 'Save' to save them.

You can close an order at any time by opening the order and clicking on the Close Order button at the bottom of the Order window. This will update the status of the order to ‘Closed’.

Delete

5. Copying, Duplicate or Cancelling an order

You can duplicate or copy an order at any time by opening it and clicking on the 'Duplicate' button. This will copy the contents of the order to a new order which will be saved with a new number when you process it. Of course, you can change the details of the ‘copied’ order as required before saving it. In fact, the duplicate order may have completely different line details than the original but you may want just the original ‘header’ information to remain.

You can also duplicate closed orders even though all the details for the closed order will be ‘greyed out’ (i.e. read-only).

Delete

6. Receiving Orders

Enter the Order as described in 2. above and process it to the stage of sending it to your Supplier (Vendor).  When your Supplier (Vendor) delivers the Goods to your chosen location, the next step in the system process is to “Receive” and receive the Goods (full of partial).

You can process Partial Deliveries;

To Receive a Delivery, Click on “Receive” against the Order No. in question which will bring up the following screen;

In this example, we’re going to partially deliver a quantity of 2 against Order Line 1 (Note that a Quantity of 8 has already been received) and a Quantity of 1 against Line 2 in order to complete the Order. Key in the Quantity received and then change the storage locations from the defaults if the quantity received was placed elsewhere other than it’s default location.

The “Reset” button will undo the Delivery Quantities and the “Receive All” will fill in all the Quantities from the “Outstanding” field.  You may still have to revise the Storage Location details in some instances.

You can now “Save” the Order or “Save & Print” the Order which will produce a Goods Receipt Note for your records. 

Delete

7. Invoice Matching and Creation

You can now await further Deliveries, or if your Supplier (Vendor ) has forwarded an Invoice for Deliveries already made, then you can process those Invoice(s) now;

If there have been several deliveries Invoiced previously, then these will all be shown on your system copy of the Invoicing program;

Here, for example is an Invoice previously processed in respect of 5 Units against Line Item 1;

And now, in this example we are processing an Invoice for the remaining Deliveries of Quantity 3.00 against Line 1, and a Quantity of 5.00 against Line Item 2;

If the Quantities you have been Invoiced does not agree with your Delivery Records, then you can now change the Quantity on this Invoice before "Saving".

If there are price differences and you’re willing to accept them, then you can adjust the Unit Price in this program and if there are additional charges against a Line, you can add a new line with the same Item Code, a quantity of 0.00 and put the extra charge in the “Net” column. This additional cost will be used in the calculation of the overall Average Cost for the Item.

If you are sent more than you ordered, then you cannot increase the Quantity here.  You must go back to the Order first and increase the quantity there and then deliver it.

In most cases the delivery and Invoicing process won’t be so complex since the occurrences of partial deliveries won’t be so extreme. Normally, you will use the “Receive All” in the Purchase Deliveries screen. If the subsequent Invoice matches (even after alteration) the Delivered Order and you have “Saved” it, then the Order will be deemed to have been fulfilled and disappear from the system.

You can “Cancel” an Order at any time.  If there are partial Deliveries in the system, you can still cancel the remainder of the Order.

Delete