What is Purchase Order (PO)?
Purchase Order which is commonly known as the “PO” is the document prepared by a buyer in favor of the seller to purchase required goods. This is the agreement between a buyer and the seller mentioning the name of materials, quantity, specification, terms of payment, delivery date etc. Purchase Order is used in case of credit purchase.
Purchase Order may be prepared in manually or it can be generated using computer software. PO is prepared by computer software is more popular than manually prepared PO because the software generated PO is less time consuming, efficient processing and knowing the inventory level instantly. It also tracks the information on Payment.
Purpose of Purchase Order
Purchase Order is prepared to procure the required goods of the company. This is using as a risk protector of the seller which assures the seller to deliver the materials prior to the payment. Purchase Order also using for inventory management and to track the payment.
When a seller sells goods against the purchase order, the seller can get legal protection. Purchase Order is used to add an extra level of fraud prevention and to obtain materials from the seller at a competitive price.
Contents of Purchase Order
In addition to company’s information of buyer and the date of the Purchase Order, a PO will contain following information regarding the goods the buyer wants to purchase. These includes:
- The name of the product
- The Quantity
- The Price
- The Product Specification
- Delivery date
- Payment Mode
- Discounts, if any
- Mod of transportaion
- Other information if needed.
Purchase Order Process
The following are the steps of purchase order:
| Steps | Particulars Of Steps | Description |
| 01 | Purchaser Creates Purchase Requisition | Purchase Order process starts after getting purchase requisition from the respective department. |
| 02 | Purchaser issues Purchase Order | A Purchaser raised a purchase order when the Purchase Department or Procurement Department approved the purchase requisition. Purchase Order can be created in manually or using |
| 03 | Vendor approves, rejects, or submits purchase Order for discussion | This is the step where the vendor review the purchase order to be confirmed. At this stage, the seller paying close attention on the quantities, prices, total amount due, and the terms and condition of the purchase order. After approval the Purchase Order, the vendor proceeds to deliver the materials as per the Purchase Order. |
| 04 | Recording the Purchase Order | This is the final stage of the procurement process where the purchaser filing the purchase order copies for the audit. |
Once the steps mentioned in the above is fulfilled, the goods or services are delivered and inspected. In the end, the seller is issued Invoice to the purchaser and payment is made as per the terms and conditions mentioned in the Purchase Order.
Importance of Purchase Order
- Purchase Order Simplifies the ordering process
- Purchase Order helps to check the current market price of the product by collecting the quotations from the various vendor
- Purchase Order helps to make an appropriate budget for the project
- Purchase Order helps to avoid duplicate orders
- Purchase Order protect the buyer against unexpected price changes between the date of order and the date of delivery or invoice
- Purchase Order acts as
the legal documents.