If you are reading this, then the chances are that you are interested in procuring goods or services for your business. While it may sound easy, the whole process of reaching out to a reliable supplier and getting your purchases supplied can be complicated and tiresome. For instance, you can experience payment issues, supply shortages, and miscommunications leading to delayed or incorrect shipment. In order to avoid such inconveniences, using a purchase order will surely help.
What is a purchase order?
A purchase order (PO) is an official document that is created by a buyer indicating the list of specific items they want to purchase from a seller. Normally, a purchase order does include the type of goods/service, their quantities as well as prices. To make a purchase order more effective, it’s always recommended that the buyer includes as many details as possible.
Upon receiving the document, the seller/vendor will either decide whether or not to accept the document. If s/he signs it, then the document will act as a legal contract binding the two parties (the buyer and the seller). Therefore, the seller will have to sell the items set forth by the buyer bearing in mind the quantities, prices, timelines, and any other requirement as dictated by the document.
It is also important to note that each purchase order does have a unique purchase order number. This number is useful, especially when tracking the delivery as well as payment.
How does a purchase order work?
Step 1: The buyer decides to purchase goods/services for his or her business.
This is the first step when using a purchase order. Here, a buyer must identify which products and their quantity are needed.
Step 2: The buyer writes and sends the purchase order
The buyer uses the information from the first step to write an inclusive purchase order. Once written, they can decide to either send it electronically through emails or through postal address. You can choose to indicate the time you would want feedback approval from the seller.
Step 3: Seller reviews and confirms the purchase order
Upon receiving the order, the seller will review the request and check whether he/she is able to fulfill it. If the seller is in a position to meet the requirements, he/she will confirm the PO and notify the buyer. After approving the request, the document will legally bind the two parties.
Step 4: Product or service fulfillment
Once the seller approves the PO, he or she will be responsible for providing the services or products listed by the buyer. The seller will ship the goods to the buyer as per the agreement stipulated in the PO. At this stage, the seller can also create an invoice and send it to the buyer indicating the items purchased.
Step 5: Invoice payment
This should be the final stage of PO transactions. Here, the buyer becomes liable for paying the invoice as per the agreed terms.
What to include in a Purchase Order
Among other specified things, a standard purchase order should contain the following:
- The type and quantity of goods or services purchased
- The specific brand names or model numbers of items needed
- The cost of each item purchased
- The expected delivery date
- The buyers’ delivery location or address
- The billing address
- Payment conditions and terms
Why PO is Required?
The majority of established businesses enjoy a positive and steady working relationship with their suppliers due to purchase orders. However, small scale businesses may not feel the need for a purchase order due to their simple purchasing habits. As the business grows, and more hands get involved in the purchase process, the businesses suddenly start to realize the importance of having a purchase order. This is because, with such growth, more complex and demanding purchases become more rampant. At the same time, you will start getting urgent or specific purchases meaning your level of communication will also be heightened with your seller/supplier. In order to avoid errors, you’ll have to use a PO. A supplier will only release shipment using the PO number as a reference. This not only makes transactions easy but also more relevant and transparent.
Free Purchase Order Templates
Do you want to create a straightforward and easy purchase order for your business? If yes, then you are in the right place. Our Purchase order templates are easy to use and offer more legal protection both for buyers and suppliers. From a buyer’s side, the PO templates help ensure the supplies are made without any errors or miscommunication. For suppliers, the PO templates provide an assurance that the buyer will pay for the bought items in a timely fashion.
How to Manage Purchase Orders
As simple and straightforward a PO may seem, their management can sometimes be challenging, especially if you are a beginner. Therefore, here are some useful tips that can work for you should you experience any difficulties.
Order in bulk to lower costs
When you buy goods or services in bulk, you stand a chance of benefiting from preferential item pricing. Plus, you will purchase goods at a lower cost per unit as compared to when you buy small amounts. However, you should only go for this option if you are certain and confident to sell the entire merchandise.
Be timely to foster a good relationship with suppliers
As a golden rule, always purpose to send your POs and invoices in a timely manner. This will convince your suppliers that you are predictable, trustworthy, and professional. Therefore, they will have confidence when working with you. On your side, you’ll always get continuous supplies hence developing your business without any difficulties.