Purchase orders are a relic. Here’s what’s replacing them.
Procure-to-pay (P2P) systems help finance teams maintain control in a complex purchasing environment and give every expense an easy-to-follow paper trail. They’re essential for accurate reporting, faster audits, and efficient AP operations.
But not all Procure-to-pay systems are equal. In this article, we compare two—the old PO system and the Airbase approvals system—against four key purchasing metrics. If you’re interested in an approval system, here’s why Airbase approvals make sense for your company.
Key purchasing metric #1: Approval time
The easier it is for employees to pay for the tools they need to get work done, the faster the company moves. Long approval timelines get in the way of employee productivity.
When it comes to approval timelines, the point of difference between Airbase approvals and POs is the paperwork.
Generating and processing a PO involves a purchase requisition form (which goes out to managers for approval), the PO, and the invoice. If the quote or contract changes during negotiation, the requester needs to update the PO. Over hundreds of transactions, this can create a hefty stack of files that inflate approval timelines and slow the company down.
With Airbase approvals, finance teams can manage requests, vendor documents and payments in one place, without any paperwork.
Employees submit an expense request that acts as a source of truth for the expense. The request goes out to managers/department heads for approval via email. Contracts, quotes, and invoices upload directly to the request, substantially reducing the time to approval.
Key purchasing metric #2: Ease of implementing new approval processes
Airbase approval policies, automatically deciding who needs to approve requests, give finance teams flexibility with controls. They can set department-level policies, add new approvers, and set no-approval-needed rules for specific individuals.
David Coffman, Controller at Doximity, tells us that the flexibility of a “heavier or lighter touch for approvals” helped him “keep friction to a minimum” when he rolled out an approval process to the employee base.
“We have a light-touch upfront approval policy for now,” he says. “All expense requests go to the finance team for approval. But if we ever need to tighten controls and add more approvers or change approval thresholds, I can do it without disrupting operations.”
Unfortunately, POs don’t have a ‘control dial’ that finance teams can turn up (or down). The PO process is rigid and trying to fine-tune it for departments or individuals interferes with the ease of use.
Key purchasing metric #3: Employee experience
Most companies wait as long as they can before implementing a PO process because they know how it impacts employee experience. POs are viewed as a “necessary evil” rather than a tool that can bolster responsible spending.
David Coffman tells us this was the main reason why he held off on implementing a PO process at Doximity. “I saw my job as finding ways to delay that level of red tape and hoop-jumping for my business partners as long as I could.” he says.
The process for submitting expense requests should be as easy as sending a Slack message, but generating a PO is the messaging equivalent of sending a telegram.
In some cases, an overly bureaucratic process encourages rogue spending by pushing employees to ignoring process and purchasing the tools they need themselves. The Hackett group reports that “rogue spend” can account for 5%–10% of a company’s AP budget, and is impossible to control. The easier you make the spending experience for employees, the easier it is to keep spend in the system.
Giving employees an easy-to-use system with quick approval times keeps processes simple and automated, providing a seamless employee experience. Creating an expense request in Airbase takes less than a minute—all an employee needs to do is enter the vendor name, spend amount, specify if the expense is recurring or one-time, and categorize the expense (if possible).
Key purchasing metric #4: Reconciliation time
PO reconciliation requires matching the purchase requisition to the line items on the PO to the line items on the invoice. The three-way match process helps companies avoid paying for fraudulent or incorrect invoices, or paying for an unused service.
But the three-way match costs companies countless hours of accounting time. Especially if the charges are recurring.
Airbase approvals automate away the bulk of the reconciliation work by prompting employees to categorize expenses at the approval stage. This makes the downstream accounting work for the finance team easy.
The accounting team still has to review the categorization before posting the transaction to the GL for the first time, but if the expense is recurring, future transactions sync to the GL automatically with the correct coding rules so that the finance team can achieve near real-time reporting on expenses.
Is it time to replace POs?
Purchase orders used to be the go-to system for approvals. That's why Airbase still has a full PO system to support legacy accounting processes. But that’s quickly changing. Approval policies outperform POs across four key approval metrics—approval and reconciliation time, ease of implementing a new approval process, and employee experience.
POs slow employees down, add manual work, and get in the way of automation. But they’re no longer a “necessary evil” companies have to put up with for more control over spending.
Combining a streamlined approval system with new payment methods such as virtual cards help employees spend without any bottlenecks and automate away the bulk of finance’s reconciliation and reporting work.
Give Airbase approvals a try. Sign up for Airbase now.