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 gets involved in order to get invoiced.
1. Identifying the Need for products and or services
First of all, the purchaser needs to identify if there’s a need of ordering 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 move forward with preparing the order and sending it to the vendor for confirmation.
3. Confirming The Purchase Order
After sending 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, he approves and sends the order 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 generates the invoice which includes the goods, the quantities, and the amount owed if so. This is the final step in which the purchaser pays 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:
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. 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 PO 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. 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 PO will provide a quick answer to that and the issue will be resolved.
4. Manages 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.