Purchase Orders 101: What is a purchase order?
You man vaguely know that it is a form used by your business, and you may find it just another annoying part of the paperwork you process in a day… but purchase orders are very important!
A purchase order should be taken seriously because it is essentially a contract that authorizes a supplier to deliver on goods or services at a predetermined price. If your company regularly needs to make purchases from regular vendors one of the foundations of your purchasing process will be purchase orders.
Purchase orders can be of varying complexity and design but should make sure to touch on the following points:
- Product: The Purchase Order should point out what you intend to buy. You should also include the quantity, unit type and even a short description.
For example: 4 cases of bottled water. Instead of 4 bottles of water.
- Delivery: State when and how goods will be shipped to a specified address. Example: FedEx overnight to (office address)
- Price: Make sure to state the price properly, referencing your vendor’s product catalog or your pre-negotiated pricing contract. Specify if the cost is for per unit, total cost, weight or volume. Make sure to also include the currency you will be using for each purchase order. Example: $13 USD per Pound | 7 € per Kilogram | $50 CAD total cost
- Payment: There are many different ways to make a payment. You may have pre-negotiated terms with your vendor. Specify how you intend to make good on your purchase whether by credit card, vendor credit, cheque, cash, bank transfer etc. Don’t forget to calculate the tax.
Example: Payment to be made by Visa card on file.
With purchase orders it is a good idea to have established purchasing processes and procedures in place to expedite the fulfillment of new stock or services. All staff who are involved in purchasing or procuring supplies for your business should be trained on your purchasing process.
Your procurement process should keep track of your spending and inventory levels to make reporting and administration easier to manage. An efficient purchasing process can even make forecasting more efficient and allow your company to save money throughout the different departments of your business.
Enterprise level organizations, and even small and medium sized companies, should establish a standardized purchasing process when requesting goods or expenses to streamline the procure to pay cycle.
E-Procurement software such as Procurify can automate your PO creation process ensuring that crucial details are never missed, budgets are kept in line, and pre-approved vendors are always used as a best practice. You can learn more about purchase orders here!