What’s The Definition Of A Purchase Order?
A purchase order is a legally binding document that proves a business’ willingness to buy goods or services from a supplier. A purchase order usually includes the ordered quantity of the product/service, the payment terms, and the expected date of delivery.
How Does A Purchase Order Work?
In the aspect of the purchaser, there are 5 different steps that a purchase order involves before it can be finalized.
1. Identifying The Need For Products And Services
First of all, the purchaser needs to identify if there’s a need to order a product. After identifying this need, he should calculate the quantity that his store will require to meet the customer’s needs.
2. Preparing The Purchase Order
After calculating the quantity needed, the purchaser should prepare the order and send it to the vendor for confirmation.
3. Confirming The Purchase Order
After the purchaser sends the purchase order, the seller goes through the order that has been sent and confirms that he can fulfill the order based on the available quantities and the time of delivery.
4. Approving The Order
After confirming that the seller has enough product stock to send to the purchaser while also confirming that he can meet the time of delivery, the seller approves the order and sends it to the purchaser. What follows is making a legal contract between them.
5. Provision And Invoicing
Since the vendor approved the order he’s obligated to provide the ordered product as agreed in the legal contract. In this step, the vendor issues the invoice which includes the goods, the quantities, and the amount owed. This is the final step in which the purchaser generates the invoice of the purchase order as indicated in their agreement.
Purchase Order Template
The Significance Of Purchase Orders
Purchase orders are essential to a business’s workflow because they have a crucial impact on the planning of the company. Specifically they:
1. Keep Track Of Products
With purchase orders, a business has the ability to keep track of the incoming goods while maintaining a well-organized system of orders.
2. Help Eliminate Errors
A purchase order equals a legal contract. Thus, a business will hold a document including all the important information about the purchase. As mentioned earlier, the Purchase Order includes the price, the quantity, and other purchase details. Thus, your team will have all the information gathered in one document which they can use for reference each time there’s a disagreement.
3. Provide Legal Protection
A purchase order provides legal protection to the business in case a disagreement arises. For instance, if the purchaser doesn’t recall the quantity that he purchased the Purchase Order will provide a quick answer to that and the issue will be resolved.
4. Manage The Pipeline
Purchase order documents provide easy traceability and help businesses manage their entire pipeline. From the initial steps of the order creation to the delivery of the product, the purchase order provides information and traces effectively every step of the process.