Purchasing management software for small businesses

Imagine a world where procurement and accounting teams work harmoniously without duplicate invoicing, untimely payments, or lost procurement documents. Purchasing software can make this dream a reality by integrating procurement and finance workflows and providing a centralized system for all purchasing-related data.

This article will explore why purchasing management software is becoming an indispensable tool for strategic procurement and offer an overview of the market's leading purchasing software solutions for small businesses.

What is purchasing software?

Purchasing software is a type of business software that helps organizations automate their procurement activities. Purchasing software solutions can come in various types, and each focuses on a specific procurement aspect, such as purchase order management, supplier relationships, contract management, invoicing, spend management, or electronic sourcing.

To provide the best experience, purchasing software often connects to other platforms, such as ERP (Enterprise Resource Planning) and accounting systems. These integrations help companies synchronize data across different departments and platforms, which enables procurement and accounting teams to work more efficiently.

Modules and features included differ from system to system. A reliable program that will bring the most value to a business is a multi-functional one with the following capabilities:

• Management of purchase requisitions, requests for proposals, purchase orders, invoices, and receipts
• Multi-level approval workflows
• 3-way matching of POs, invoices, and receipts
• Budget management
• Expense management
• Inventory tracking
• Supplier information management
• Item management
• Reporting and analytics
• Integrations with accounting software like QuickBooks Online, Xero, and NetSuite.

In addition to the above-mentioned capabilities, the software should adhere to security and compliance regulations and protect users’ sensitive data. Customization of documents, budgets, and reports is also highly important so the system can adjust to the peculiarities of different business processes.

Now let's explore the factors that encourage companies to take a step towards automation.

The reasons to start using purchasing management software

Purchasing software solutions are tailored to meet the diverse needs of CPOs, CFOs, COOs, and other stakeholders. Sooner or later, all companies reach a point where they need to consider approaching procurement strategically either for the sake of reducing costs or saving time (or both!).

One of the main reasons that drive this decision is the complexity of the procurement process, which involves multiple steps and employees. Without a software solution, tasks like submitting purchase requisitions, sending requests for proposals, selecting the best offers from vendors, issuing purchase orders, receiving goods and services, and conducting three-way matching can easily take hours of tedious work that drains human resources.

Moreover, procurement documents often require approval by department heads or other stakeholders. In practice, this means that employees must physically take documents to their approvers, which is not always possible due to sick leave, vacations, and work trips. *Thus, a paper-based approach can easily result in delays and supply shortages. *

Additionally, the manual approach is highly prone to human errors, including:

• Incorrect data entry – for example, the wrong delivery address, product code, or payment terms
• Miscalculations when dealing with large quantities or complex pricing structures
• Duplicate orders for the same products or services
• Duplicate payments for the same invoice
• Lost or misplaced documents.

Even when these mistakes are spotted quickly, correcting them requires time and effort that could be devoted to more high-value tasks. In addition, such errors lead to misunderstandings between procurement and accounting teams which closely cooperate at different stages of the purchasing process. In general, miscommunication between departments can have many reasons and can cause various issues. Let’s look at some examples.

• Suppose the procurement team is not keeping accurate records of their purchases and receipts. It may be difficult for the accounting team to reconcile their accounts at the end of the month, causing problems with regulatory compliance and financial reporting.
• If there is a delay in recording invoices by the procurement team, it can confuse the accounting team when they try to match payments to the correct invoice, damaging the company's cash management. This could lead to incorrect payments or unpaid invoices, causing friction between the two departments and potentially damaging supplier relationships. It also has a detrimental effect on the accounting team's accrual reporting, which is essential for maintaining a clear picture of a company's financial health and forecasting future revenue and expenses.
• If teams use different terminology or formats to record data, it's challenging for them to communicate and understand each other's work. This lack of standardization can lead to misunderstandings and errors in financial reporting, making it harder to gain an accurate picture of the company's financial data.
• The accounting teams may not be informed of cancellations or changes to orders made by the procurement team, which can also lead to inaccurate accrual and financial reporting. The procurement team may order goods or services without verifying whether there are sufficient funds available in the budget, which can lead to the accounting teams rejecting invoices.

Let's examine how specialized software can facilitate procurement activities and mitigate the aforementioned problems.

Benefits of implementing purchasing software

The goal of purchasing software is to streamline and optimize the procurement process so that it takes less time but brings more value to the organization. Here are some of the numerous advantages that purchasing management solutions bring to companies.

Reduces manual work and human errors

Manual data entry and a vast amount of paperwork result in errors, such as typos, misinterpretation, double entry, or even lost documents. Correcting these mistakes can be costly and time-consuming and can create unnecessary pains for procurement and accounting teams in the form of late payment fees, incorrect invoicing, and more.

Automation also facilitates mundane tasks, like selecting the items for purchase or a supplier, filling in the information about the specific location and department, and more. It is possible with customizable supplier and item catalogs, which users can choose from while creating a purchase order, an invoice, or a receipt. Other fields, for example, specific location, department, and spending category, can be filled in faster with drop-down menus.

Increases transparency and accountability

Purchasing software creates a digital trail of all procurement activities and provides authorized users with complete visibility into contracts, requests, orders, invoices, receipts, inventory, and budgets.

Complete visibility of all procurement operations also helps a company prepare for an audit. Purchasing software serves as a central repository for all procurement-related data. This means that all relevant information is stored in one place, which makes it easier for the accounting team to access and review the documents that auditors need to see.

Improves collaboration between teams

Purchasing software reduces the potential for misunderstandings within the organization by providing a centralized platform as a primary channel of procurement-related communication that all departments can access. For example, when a purchase order is created, it is automatically sent for approval according to the predefined approval workflow. The system notifies the approver and displays the purchase order status so a requester and other stakeholders stay informed.

Additionally, many purchasing solutions include collaboration features such as notes, comments, and attachments for documents so that members of different departments can discuss the details of a particular purchase or payment. This encourages better coordination and faster resolution of procurement-related issues. These features are especially useful for procurement and accounting teams which are the most involved in the procure-to-pay cycle.

Facilitates budget control and compliance with financial policies

Purchasing software can help companies follow their financial policies by automating processes and providing customizable workflows and catalogs. For example, organizations can maintain a list of pre-approved suppliers and items within the platform. This way, employees can easily purchase from trusted sources that meet specific criteria, such as price, quality, and compliance with regulations.

Not only does this help reduce errors and non-compliance, but it also streamlines the purchasing process by eliminating the need for manual supplier research. In addition, supplier catalogs ensure that purchases are made from preferred vendors who meet specific criteria such as price, quality, and compliance with regulations.

Streamlines approvals

The manual approval process relies on passing physical documents from one person to another while purchasing software enables approvers to receive, review, revise, approve, reject, or send for review procurement documents electronically from any location. This significantly reduces the approval time, making the purchasing process faster and more efficient.

This is possible through customizable approval workflows with multiple approvers for each document according to the company's specific needs. The system usually sends notifications to the requester and approver, ensuring no request goes unnoticed or gets stuck in the approval process.

Reduces the risk of supply shortages

Supply shortages can be a significant problem for businesses as they usually result in lost sales and unhappy customers. Purchasing software can help the procurement department solve this problem in multiple ways:

• It enables users to track real-time inventory, giving them a better understanding of their current stock levels and allowing them to make informed purchasing decisions to avoid supply shortages.
• It provides automatic notifications once supplies reach a certain level according to the predefined required inventory levels and tolerance limits.

Ensures timely payments

Late payments can create various issues; for instance, they can damage the relationship with the supplier, cause companies to lose out on discounts or bonuses for early payment, and potentially harm their reputation. Procurement management systems typically have two features to prevent late payments:

• It provides complete visibility into the payment statuses of the documents, allowing accounting teams to monitor and manage payments more effectively by quickly filtering out unpaid orders.
• It identifies documents ready for payment and sends automatic notifications to the person responsible.

Prevents overspending

Let's examine how a company might overspend and how a purchasing management solution eliminates such cases:

• Maverick spending: When employees make unauthorized purchases outside of the company's established procurement procedures, they often buy items at higher prices. Solution: A company can configure approval workflows for purchase orders so that all purchases are made through the official channel.

• Lack of price comparison: When a company chooses suppliers without properly sourcing their competitors, it may miss out on opportunities to buy at lower costs. Solution: After a purchase request has been issued, a company can send requests for proposals to several vendors directly in the system to conveniently compare their offerings and choose the best option.

• Duplicate invoices: This is when a supplier accidentally sends the same invoice twice, or the accounting team doesn't have an effective system to track paid invoices and ends up paying twice due to oversight. Solution: A multi-functional purchasing software immediately notifies users when they try to pay the second time for the same invoice.

Facilitates spend analysis

Spend analysis is an integral part of effective forecasting and budget management that helps organizations recognize their spending patterns, identify potential savings opportunities, and make data-driven decisions. However, it is a complicated process that involves extracting, consolidating, cleansing, enriching, classifying, and analyzing a vast amount of spending data from multiple sources.

Purchasing software simplifies this process in several ways:

• Provides complete and centralized data storage so that spending data is not scattered around various spreadsheets and paper documents.
• Eliminates missing data by allowing users to set up mandatory drop-down fields in order to ensure that requesters enter all information needed.
• Sends notifications about discrepancies in purchase documents so users are instantly informed about any errors or mismatches detected in related purchase orders, invoices, and receipts, enabling them to be corrected quickly.
• Creates customized reports on budgets, inventory, expenses, payments, and procurement documents with automatically generated graphs and pie charts to help companies identify their spending patterns.

Examples of purchasing software for small businesses

Nowadays, there are many purchasing software solutions available with different features and capabilities. Choose the one that best fits your procurement process and consider the future scalability of the system to avoid the hassle of frequent replacements. Here are a couple of examples of purchasing software that could be suitable for your business needs.

Fraxion

Fraxion Spend Management offers both cloud-based and on-premise solutions. It has features to help with requisitions, purchase orders, expense management, AP workflow, spend analysis, and reporting.

The software offers inventory control, multi-level approvals, and vendor management. Additionally, it enables businesses to manage travel expenses, analyze budgets, and audit their purchasing process to ensure compliance.

Fraxion integrates with several ERP and accounting systems, including Quickbooks Desktop Enterprise and Quickbooks Online, Netsuite, Xero, and more. It offers two pricing plans — Fraxion e as an on-premise or hosted solution and Fraxion Prime as a cloud-based software. However, the detailed pricing information is not available on their website.

Limitations:

• No receipt generation (instead, users can snapshot and upload receipts)
• No invoice generation (however, invoice capture, 2 or 3-way matching, and approvals are possible)
• No contract management
• No ability to source or onboard suppliers
• No prepaid cards
• No free trial (it is mentioned on various software review sites, but we couldn't find it on Fraxion's website)
• Customization is unavailable for pricing plan Fraxion e.

AvidXchange

AvidXchange is a cloud-based purchasing software known primarily for its invoice management and payment automation capabilities. Users can see the status of their invoices and bills payable and process the payments directly in the system. The software is also designed to identify off-cycle bills, verify meter readings, and detect duplicate charges to reduce the risk of fraud.

In general, AvidXchange has four main modules dedicated to purchase order management, invoice processing, bill payment, and utility bill management. The system ensures users don't make multiple purchases for similar products and automatically performs 2- or 3-way matching to verify invoices. It also offers features such as automated approval workflows and reporting.

AvidXchange integrates with AccountMate, Sage Intacct, Quickbooks Online, and more. The pricing information is not available on their website.

Limitations:

• No purchase requisition management
• No inventory tracking
• No duplicate data alert
• No ability to source or onboard suppliers
• No free trial.

Precoro

Precoro is a cloud-based purchasing software with features to help companies handle the whole purchase-to-pay process, including budget management, expense tracking, inventory control, supplier management, creation and approvals of purchase requisitions, purchase orders, invoices, and receipts, automated 3-way matching, and advanced reporting.

Precoro can also adjust to different business processes as it lets users create unlimited numbers of customizable approval workflows. Another benefit is that users can quickly filter out unapproved documents and utilize automated emails and Slack notifications, ultimately speeding up approvals. The tool also makes it easier to create and fill in procurement documents by incorporating drop-down menus and customized item catalogs. When it’s time to pay for invoices, the system makes sure that duplicate payments don’t occur by notifying users when an invoice has already been paid.

The software offers customizable reports on expenses, budgets, payments, purchase orders, invoices, receipts, and more, which gives companies a comprehensive view of spending. This function also allows companies to create and monitor separate budgets for different projects and departments.

Precoro uses APIs to integrate with other systems and directly integrates with the most popular accounting software like QuickBooks Online, NetSuite, Xero, and more. There are two pricing plans which include all features; the only difference is the number of users. Both plans also grant access to weekly updates and 24/7 lifetime support.

Limitations:

• Does not offer on-premise solutions
• Doesn't provide payment cards (on the roadmap for Q4 2023)
• No in-depth inventory management (however, the system enables users to monitor delivery to their warehouses and see the supplies in each of them. It can also prevent supply shortages by sending notifications if products drop down to a certain level defined by the user)

Automated procurement, maximum efficiency

Companies implement purchasing software solutions to avoid manual and paper-based approach drawbacks, such as errors, lost documents, limited tracking of procurement documents, inventory management issues, and limited visibility into spending. Manual procurement can also result in policy violations, miscommunication between accounting and procurement teams, inaccurate reporting, and poor cash management.

All-in-one purchasing software solutions help companies manage their procurement activities from a single, easily accessible system, thereby simplifying compliance and transparency among different departments and stages of procurement. When selecting purchasing software for your team, choose features that address the above-mentioned paint points most effectively. For instance, custom reporting provides visibility into spending and procurement documents and helps the accounting team create accrual reports and conduct spend analysis.

Additionally, it’s important to focus not only on rich functionality but also on the customization potential for documents, catalogs, and reports so that they can more accurately address your company's specific requirements and workflows. Security is also an important factor since sensitive data will be entered into the system in order for it to run as needed. A final key consideration is integrations with accounting software, like Quickbooks Online, NetSuite, or Xero; these are essential for seamless financial data flow.