What is a Purchase Order (PO) and how can your Business Use it?

Purchase order

The success of your business hinges on many different things. One of these is your ability to manage requests from buyers to suppliers. A document that can help you do this more easily, protect both the buyer and the seller legally and provide a number of other benefits for both sides is a purchase order. Read this article to learn more about what purchase orders are and how you can effectively use them to help your business be more successful.

What is a Purchase Order (PO)?

So what exactly is a purchase order or a PO? Basically, this is a document (it could be a normal paper document or an electronic document) that a buyer sends to the supplier or a vendor, along with an order request.

This document serves as a risk-protection for the vendor when the buyer orders supplies on account and he needs to deliver those items before payment is made. A purchase order then allows the supplier to track payments as they are made for different orders. In addition, a PO also lets the vendor compare the inventory they have on hand with the one they shipped to the buyer.

Once the seller accepts the purchase order, it becomes legally binding for both parties. This means that, in the case the buyer refuses to pay for order for any reason, the PO will protect the seller.

How Does a Purchase Order Look?

A purchase order usually looks like any standard document and it can be in non-electronic, paper form or in electronic form. It typically contains the following items:

  • Company information
  • Vendor information
  • Shipping details (where to send the items)
  • Order information (type of product, its quantity, price, etc.)
  • Billing address (what address to bill the purchase order to)
  • PO number (this number is used to more easily match the purchase with the shipment).

Each of these items is necessary for a successful purchase order. Today most PO software comes with fields for every one of these. All the buyer needs to do then is to fill in the fields prior to sending the order to the supplier.

How Can You Use Purchase Orders in Your Business?

A business that has no standardized way to manage purchase requests can hardly control how and where its employees spend its hard-earned money. This can lead to a potentially serious problem in the future, but with purchase orders you can always be ahead of it.

When an employee in your organization needs new supplies or material for his work, he will typically send a requisition to the manager, who can then make the necessary purchase. For this purpose it is best to use standardized requisition documents that all your employees can use and as a result save time.

This will also allow the manager (or another person tasked with approving requisitions) to submit orders in bulk. What this will do is allow the approver to get bulk discounts (if the vendor offers them) and it will also save processing time.

Based on these requisitions, the approver can contact the seller and tell them that they will be sending a purchase order before they make payments. This is called a “purchase order process”. The PO is then sent and after the vendor reviews and approves it, he can send the ordered material or supplies to the shipping address indicated by the buyer.

As you can see a purchase order is a very important and useful document that you can use to more easily handle your employee’s requisitions and order items from vendors. Still, a PO can be lacking, so be sure to check out Purchase Order Plus. This will allow you to customize your POs sent through Xero.

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