All you want Know About Purchase Order | PO Format Download | (Defination, Process, Pro&cons)

What is meant by purchase order? | What is meant by a PO?

A purchase order or PO is an official document issued by a buyer to pay a seller for the sale of specified products or services in a future delivery. By using a Purchase order buyers have an advantage in the possibility of placing an order without immediate payment.

 

 

 

 

The process involved in issuing Purchase Order

The purchase order is in the procurement process part which gives confirmation and specification of the actual need for goods or services before beginning the purchase. This also includes payment processing and auditing results.

 

1. Purchase Requisition (PR) Creation.

The requester creates a document to obtain permission to proceed with the purchase. It may be amended or added to or revoked before approval is obtained.

 

2. PO Issuing

Once PR Purchase Requisition is approved, PO can be made after prices, delivery, terms, and conditions are agreed upon. For large purchases (Based on the PO value), companies usually issue an RFP-Request for proposal to their preferred suppliers. Some level of financial authority is required to sign off on the purchase before placing the order.

The PO is usually delivered electronically to the selected supplier.

 

3. Supplier approves the PO

After the Supplier checks on details that are incorrect or unacceptable, and Supplier may request corrections. The supplier then approves the revised Purchase order-PO, if necessary, generally supplier will approve the PO via email or using an e-procurement platform.

 

 

4. Purchaser records and files the PO and looks for delivery

After the product is delivered or the service completed, the purchaser/company reviews the purchase to see if it meets the acceptable standards mentioned in PO. Where goods are recorded in the material inward register. The services will usually be signed off for supplied satisfactorily.

 

5. Approval and payment

Once the invoice is received, it will be applied to the PO. If everything is correct, the invoice will be paid according to the agreed payment terms.

 

Advantages and disadvantages of the Purchase order - PO

Advantages of Purchase order

- Duplicate orders are avoided

- Surprise invoices are avoided

- Incoming orders tracking management

- Improvement in the accuracy of financial and inventory

- Helps with auditing requirements

- Inventory management

- Catch unexpected price hikes

- Delivery times are improved or even speed up, as POs help to    schedule delivery for whenever the buyer needs it

- Act as legally binding documentation

- Have clear communication between vendors and buyer

- Smarter budget: procurement teams can only purchase with available funds, which requires approval

However, it’s important to assess your company’s specific needs before introducing a purchase order system as there’s an administrative downside to using POs.

 

 

Disadvantages of Purchase order

It creates additional paperwork and is time-consuming which can be annoying for smaller purchases by a smaller team

(Note that if a business uses credit cards for purchases, POs can simplify the credit card reconciliation process for the accounting team.)

 

 

 

Purchase Order Template

Click here to download

 

 

 

 

FAQ

What is the difference between a purchase order and an invoice?

The difference between a purchase order and an invoice is that a purchase order is issued by the buyer and must be executed by the seller or vendor, whereas an invoice is issued by the seller or vendor after execution of the purchase order and must be paid by the buyer.