What is Purchase Order

Purchase Order Definition

Purchase Order (PO) is a document generated by a buyer of specific goods or services to validate a particular purchase transaction. When the PO is accepted by the seller, it creates a contract binding both the seller and the buyer. The order includes details about the quantity, description, discounts, prices, payment terms, date of shipment or performance, other terms and conditions related to the goods or services that are subject to purchase. A typical PO identifies a specific seller and is generally called ‘order’.

Purchase Order is a commercial document that forms the primary official offer issued by a buyer to the seller. The main objective of PO is to control the purchasing of services and products from external suppliers. When a PO is issued, it doesn’t imply that the order is initiated. If there is no previous order, then the acceptance of the order by the seller binds a contract between the seller and the buyer.

When the seller accepts a PO from the consumer, they both are legally bound. The buyer should clearly and explicitly communicate their terms and conditions to the seller to avoid any miscommunication. In today’s technology-driven world, Purchase Order Computer Systems make the purchasing process more efficient and allow better payment tracking and inventory. As an essential part of Enterprise Resource Planning (ERP), Pos is available in two basic formats:

Electronic Purchase Order

The electronic PO is generated in a transactional e-procurement system or straight from an ERP or FMIS system through which a request is sent electronically to a seller for direct upload into their system.

Non-Electronic Purchase Order

The non-electronic POs compel businesses to rely on paper-based approach to record the PO.

Different types of Purchase Orders

Let's take a look at There four types of Purchase Orders which essentially plays the role in a company. 

Standard Purchase Orders

Standard PO is created for a one-time purchase of different products. It is created when the details of the services and goods are known. Key aspects of a standard PO include delivery schedules, accounting, distribution quantities, and estimated cost.

Blanket Purchase Orders

A blanket PO is created when the consumer agrees to buy particular services or goods from a specific seller with no specific mention about the exact quantity of the goods purchased. In a blanket PO, the pricing is not confirmed. This order is used generally for recurring purchasing of a specific set of items from a seller.

Contract Purchase Orders

The contract PO includes the vendor’s details and the delivery terms and payment. The products are not usually specified in the order. It is used to create an agreement between a customer and seller as the basis for an ongoing commercial relationship. 

Planned Purchase Orders

A planned POs is issued usually for contracts that remain valid for the relatively longer period for buying products or services from a single source. In these Pos, it is important to mention the tentative delivery schedules and the details of goods or services that the buyer prefers to purchase.