What is a Purchase Order (PO)

Business Cost Control Purchase order
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A purchase order (often referred to as PO) is a legally binding document that is issued by a buyer to a seller to confirm the purchase of goods or services. It is a formal offer by the buyer to purchase the goods or services at the specified price and terms. The PO typically includes the following information:

  • Purchase order number
  • Date of purchase
  • Buyer and seller information
  • Description of the goods or services being purchased
  • Quantity being purchased
  • Unit price
  • Total price
  • Payment terms
  • Delivery terms

 

Why are Purchase Orders Important?

The PO is an important document for both the buyer and the seller. For the buyer, it helps to ensure that the goods or services are delivered on time and at the agreed price. For the seller, it provides a guarantee of payment.

The PO can be used in place of a contract, but it is not always necessary. If there is an existing contract between the buyer and seller, the PO may not be required. However, even if there is an existing contract, the PO can be useful for documenting the specific terms of the purchase.

 

Here are some of the purposes of a PO:

  • To formalize the agreement between the buyer and seller
  • To track the status of an order
  • To ensure that the correct goods or services are delivered
  • To protect the buyer from unauthorized purchases
  • To provide a legal basis for resolving disputes

If you are purchasing goods or services from a supplier, it is important to use a PO. This will help to protect you and ensure that the transaction is completed smoothly.

 

Here are some of the benefits of using a PO:

  • It provides a written record of the purchase agreement.
  • It helps to ensure that the correct goods or services are delivered.
  • It can help to prevent unauthorized purchases.
  • It can provide a legal basis for resolving disputes.

If you are a buyer, you can use a PO to get the best possible price and terms from your suppliers. You can also use it to track the status of your orders and ensure that they are delivered on time.

If you are a seller, you can use a PO to ensure that you get paid for the goods or services you provide. For project-based companies, the PO is often converted into a sales order (SO) that is used for internal control and form the basis for a job or project.

See also:

5 Common Challenges of Not Using Purchase Orders in Projects

 

What are the different types of purchase orders?

There are many different types of purchase orders, but the four most common are:

  • Standard purchase order (SPO): This is the most common type of PO. It is used for one-time purchases of goods or services.
  • Planned purchase order (PPO): This type of PO is used for recurring purchases of goods or services. It is used to forecast demand and ensure that the buyer has the necessary goods or services on hand when they are needed.
  • Blanket purchase order (BPO): This type of PO is used for large or ongoing purchases of goods or services. It gives the buyer the right to order a specified quantity of goods or services at a specified price over a period of time.
  • Contract purchase order (CPO): This type of PO is used for purchases that are governed by a contract. The contract will typically specify the terms of the purchase, such as the price, quantity, delivery date, and payment terms.

 

How to Get Started with Purchase Orders?

Some companies use Word or Excel to create purchase orders and to keep track of purchase order numbers. However, using a purchase order system can help you automate this process and comes with several additional benefits. You can find more information regarding this in the article below.

8 great benefits of using a purchase order system

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