Supplier Management is necessary for a business to run smoothly. Often, the vendor would give a list of tasks for the supplier, but these tasks could easily be misplaced, leading to chaos and disorder and messing up the payment schedules. Documentation for each purchase is necessary as receipts are necessary for G.S.T. and tax purposes, which could ease down the expenditure for businesses. Here is where the purchase order process works: update all the buyer-seller transactions up to date and keep up the communication about every minor shipment.
What is a Purchase Order
Purchase orders are an essential part of the resource planning process in the supply chain. A purchase order is a commercial contract between the buyer and seller that contains the quantities, types, and price list for the products and services purchased by the buyer. This order helps maintain a record of all the transaction documentation for both the buyer and seller. These orders are especially beneficial for small business owners to specify the required time. The seller has enough time to check whether the products are available or not; these documents come in handy during auditing for financial records.
Details of a Purchase Order
- Products/services required (clothes, stationery, grocery, utilities)
- Quantity (kg, meters, numbers)
- Detailed price
- Name of the supplier who receives the order
- Delivery location for the goods to be sent
- Billing address of the company or invoice number
- Terms and Conditions of payment
- Due date of Consignment
How Does a Purchase Order Work?
Step 1 – The Buyer takes the first step, who places the order for products and services. The buyer must identify their needs, which are also available in the seller’s store, the quantity needed, and when they will need it again.
For example, if a buyer wants to purchase candles, they must list the number of candles needed and the time of requirement. If it is the Christmas season, the candle demand is at an all-time high, so estimate the required quantity and place an order.
Step 2 – The buyer must draft the order specifying the product needed quantity and send it to the seller for approval. The buyer should also determine the time for approval because the document becomes a contract only after the purchase order is approved.
Step 3 – The seller should approve the purchase order only when all the products the buyer needs are available at the buyer’s critical time. Once all the services are available, the superior can approve and send the purchase order with the approval stamp, confirming the purchase order.
Step 4 – The seller’s responsibility is to fulfill the buyer’s demands and promptly deliver the products in the mentioned quantities. After service provision, the seller should send an invoice to the buyer for the price of all the products.
While a purchase order keeps track of the purchases made, an invoice helps for payment-related transactions. All the vast businesses maintain a record to run without miscommunication through these purchase orders.
Types of Purchase Orders
Purchase orders are of different types, and they all differ in the information drafted.
Standard Purchase Orders
These are the well-known orders where the buyers specify their items of need, quantity, delivery schedules, and payment terms, a typical standard purchase order.
Planned Purchase Orders
This order is a long-term commitment to a single supplier source to deliver all the buyer’s requirements. If there are any requirements, the buyer can send a purchase order at the earliest to the seller. However, there are tentative delivery dates for this planned purchase. If the buyer has run out of oil cans, they can immediately contact the supplier for same-day delivery through planned investment.
Blanket Purchase Order
Blanket purchases occur when the buyer knows the needs and price details but does not know the delivery schedule. Blanket purchase also helps buy multiple items in one order to negotiate the price.
For example, if the buyer can buy both stationery and clothes from the same local store or ecommerce store, they can place multiple orders and negotiate the price or ask for a discount.
Contract Purchase Order
This purchase is a formal and legally protected order. Here, the buyer can create a contract with the seller to agree on specific terms and conditions without specifying the goods and services. The buyer can continue with the standard purchase orders; however, the terms for contract purchase are stated at the end of each standard purchase.
Electronic Purchase Order
These are not paper-based and are transmitted digitally, as it is beneficial for both buyer and seller for immediate reach. There are many templates in Microsoft Excel to draft e-purchase orders.
Purchase Order Format
The below format is an example of a purchase order form, and anyone can customize it according to their invoice and department needs. These provide clear receipts and save your expenditure for many purchases and government tax purposes. Hence, all businesses use digital purchase order transactions to keep track and maintain a healthy relationship between the supplier and vendor.