What Are Purchase Orders?

purchase orders

A purchase order is a document that outlines the products or services your business needs to purchase from a vendor. Unlike an invoice, which is generated by the supplier after delivering goods or services, a purchase order acts as a legally binding contract between the buyer and seller. When you generate a purchase order, you identify what you need (for example, new boxes for shipping your product orders), when you need it by, and how much you’re willing to spend. After it’s approved internally, your purchasing team will send the purchase order to the supplier who can accept or reject it. If they accept it, it becomes a legal contract and they’ll fulfill the order according to the terms specified in the PO.

The purchase order process is great for businesses of all sizes, especially when it’s streamlined with software that walks employees through every step of the process. This makes it almost impossible to submit an inaccurate or fundamentally flawed PO that could lead to confusion later on. Using purchase order software also creates an excellent history of all purchases for the company and offers a clear audit trail when something goes wrong in the future.

Purchase orders help buyers and suppliers avoid costly mistakes that can come from miscommunications throughout the purchasing process. They help you define what you need and how much you’re willing to pay for it, which helps ensure that the vendor can deliver exactly what your business requires. They also act as a binding contract between the two parties and make it easier to track shipments, communicate with suppliers, and get payment for goods and services.

Typically, a purchase order will include information about the product or service you’re ordering, your buyer and seller (names and contact info), and your terms of sale — which may include items like the payment terms, delivery date, and quantity of goods being purchased. There are other documents, such as a bill of materials, that may also be used in conjunction with a purchase order to clarify the specifics of the product or service you’re ordering.

For example, a bill of materials might be useful for a business that wants to order custom-made products from an external manufacturer. It will provide more detail about the product, including its price and specifications, so that the buyer and seller can agree on the terms of the transaction before production starts.

If you’re an established business, you might use PPOs to establish long-term purchasing arrangements with certain vendors. This can be helpful if you’re looking to negotiate lower pricing or better delivery terms.

Overall, a purchase order is an important document that benefits your company and the people in it. It’s the best way to communicate what your business requires from a supplier, which can be an invaluable tool for avoiding costly mistakes that could hurt your bottom line. It’s also a great way to manage the buying process, so that your organization can scale effectively without adding unnecessary manual processes.