The Ins and Outs of Purchase Orders
Updated: Oct 25, 2021
1. How does a purchase order work?
When you have to buy products or services from one of your suppliers, you send that vendor a standard purchase order. This kind of document spells out all of the information that’s needed to make the transaction, including the name of your company and its mailing address, the selling company’s name and address, the type of product that’s needed, the number of units that are needed, the price per unit, and the total price.
It’s important to remember that a purchase order isn’t merely a note or a request. Rather, it’s an official contract. Therefore, when a supplier approves such an order, that person is responsible under the law for fulfilling the terms of the agreement.
Given the contractual nature of purchase orders, if the buyer doesn’t receive the correct supplies or if the seller doesn’t receive the proper payment, the wronged party can take the necessary legal actions to obtain compensation. As such, when you fill out a purchase order, it must be as clear, as detailed, and as precise as you can make it.
Be aware that people sometimes conflate the terms “purchase order” and “invoice.” However, they are not interchangeable. Typically, suppliers draw up invoices after they’ve been paid or to remind clients that certain payments are due. Invoices are not necessarily legally binding, though, and they usually lack the technical specifications that payment orders include.
2. Why are electronic purchase orders preferable to the paper variety?
Nowadays, it’s simple to switch from a system of manual procurement to one of e-procurement, and the latter is much more convenient. After all, it takes considerably less time to fill out and send purchase orders via computer or mobile device. With such a system, it’s also painless to search for an old purchase order or another item that you need to review. Indeed, given that a single sale often involves several documents ― a price quote, an invoice, a note to indicate the reception of merchandise, and so on ― paperwork can quickly become overwhelming.
3. When you order supplies for your business, do you always need purchase orders?
Let’s say that your business has been using the same suppliers for years and that you know, trust, and like all of those individuals. Under those circumstances, you might believe that you could stop relying on purchase orders and simply ask your sellers for goods over the phone or through casual emails. However, that’s a truly bad idea.
Instead, you should carefully and diligently fill out purchase orders every time you order something for your company. Without one of those documents, it becomes all too easy for a vendor to forget about a request or for a miscommunication to occur at a supplier’s office. What’s more, even the most dependable sellers make mistakes on occasion. Therefore, it’s vital for you to have a copy of each of your purchase orders so that you have a complete record of everything that you’ve ordered. Otherwise, you could end up paying for products and services for which you didn’t ask and for which you have no use.