Purchase Order: What It Is & How to Create One [+ Template]
Business transactions require a streamlined process for accuracy and efficiency. One of the most essential documents to achieve organized purchasing is a purchase order. In this article, we will tackle purchase orders, its definition, process, types, format, and system. We also offer a purchase order template for easy and effective creation.
What is a purchase order?
A purchase order (PO) is a legal document between a buyer and a seller containing details of the transaction such as the items or services to be purchased, quantity, price, delivery date, terms, and conditions. It serves as a contract that outlines the buyer's request and the seller's agreement to fulfill the order.
How does a purchase order work?
The process flow of a purchase order are as follows:
1. Buyer decides to order items from the seller.
2. Buyer drafts the purchase order and sends it to the seller for approval.
3. Seller reviews the purchase order and confirms if it can fulfill the request.
4. Purchase order is approved.
5. Product or service fulfillment.
6. The invoice is paid.
Purchase Order Format
A purchase order generally follows a specific format, including:
- Purchase order number
- Supplier name and address
- Buyer name and address
- Order date
- Delivery date and instructions
- Product or service description
- Quantity and unit of measure
- Price per unit and total cost
- Terms and conditions
Sample Purchase Order Form
Below is a sample purchase order form:
Purchase Order Template
To ease the creation of your purchase order, we provide a free template that you can customize according to your needs. The template includes the necessary fields and can be easily modified with your company's logo, terms, and conditions.
Types of Purchase Orders
Here are some types of purchase orders:
1. Standard Purchase Orders
It is a one-time purchase where terms and conditions are explicitly stated.
2. Planned Purchase Orders
It is a predetermined purchase made by the buyer with information about the periodic delivery of goods over time.
3. Blanket Purchase Orders
It is a long-term agreement for a specific amount of the product, regardless of the delivery date.
4. Contract Purchase Orders
It is a legally-binding agreement between the buyer and the seller, which includes the price, quantity, and terms and conditions.
5. Digital Purchase Orders
It is an electronic form of purchase order that is submitted and acknowledged through an online platform.
Purchase Order System
A proper purchase order system is essential in managing your business transactions. Here are some steps to guide you in implementing a purchase order system:
1. Determine the right forms for you.
Choose the purchase order forms that suit your business needs. You may opt for customizable templates online or have it made by a professional.
2. Design a workflow with outlined steps of the process.
Create a step-by-step guideline on how to use the purchase order system accurately and effectively.
3. Dictate role assignments and accessibility.
Assign roles to your employees and ensure that they have access to the necessary documents and information needed in executing the purchase order system.
4. Begin, adhere to, and improve your purchase order system.
Once set in place, implement the system as instructed, and make adjustments as necessary to improve the efficiency of the process.
Purchase Order Example
Here's an example of a purchase order:
Purchase Orders Lead to Stronger Relationships with Suppliers
Establishing and maintaining effective communication with your suppliers through the use of purchase orders can lead to better business relationships. With an efficient purchase order system, you can ensure that your orders are completed accurately and on time. In turn, this helps build trust and improve supplier reliability, leading to successful business transactions.