All new entrepreneurs will have the task of selecting and purchasing supplies. This is the where the purchasing order comes in. What is a purchase order? Below you’ll learn what a PO is and isn’t.
Because many businesses use electronic invoicing software, it is important to distinguish POs from invoices. A PO is a document that indicates the type and quantity of products or services sold by a supplier, along with the agreed price for each. The difference between it and an invoice is that a PO outlines the contractual terms of a sale and is created before an invoice.
Here is our short guide to purchase orders (POs). We outline the differences between POs and invoices, compare manual versus electronic PO systems (which help with the purchasing process), offer suggestions when you should automate your own PO system (which is often part of e-procurement software), and provide information to help small businesses do so.
A PO template is one of the most important documents for a new entrepreneur to master. Once you’ve established supplier relationships with your vendors for business purchases, you’ll need to be able to place and record orders quickly and efficiently. A PO allows you to do this with little to no fuss. The exact layout of yours will vary according to the type of business you run. However, there are a few main components found in all of them:
Purchase Order Number, or “PO Number” – This serves as a shorthand identifier for the order. You can store each PO in your company database under its PO number. It helps vendors, clients, and packing/shipping personnel to keep track of the order and log it in the books. You can ascribe numbers to chronologically. For example, the first order you place might be #00001, the 100th might be #00100, and so on. If your business operates out of multiple sites, you should include some shorthand to identify the site to which the order is shipped. For example, an order shipped to a Boston office might have the number #02987BOS, while an order shipped to a San Francisco office might be #34506SFR.
Delivery Details – This should include the following:
Billing Information - This includes the contact name and billing address of the person paying for the order.
Order details – This part of a purchase order has the following components:
The purchase order is one form you’ll use again and again in business. It works hand in hand with the invoice to document and verify purchases of materials, products, and services.
Some business owners choose to ignore the importance of a PO template. This might not seem like a big deal when you’re just starting out since you’ll deal personally with vendors. However, as your business expands, a PO becomes more important. It’s easy to lose track of income and output without one. If you fall into a problem with a shady vendor or disorganized representative, you’re left with little defense without one.
By law, a PO must constitute an “offer” by one party and an “acceptance” by another in order to be considered a contract. Technically, it is the first official offer made in a transaction. Once accepted, its terms must be adhered to no matter what. Keep this in mind when you are reviewing the terms of an offer or outlining your own!
In the case of the sale of goods, many states do not consider a PO as a binding contract unless it lists the quantity of each item ordered. This can either be an exact quantity or a range, but it must be explicitly stated.
Most states impose a minimum price that requires POs to be signed and dated by both parties so that they are legally binding. Be sure to review your state’s official website for details.
The process of manually issuing purchase orders entails two areas of potential inefficiency. The first is the arduous nature of the process itself; the second is the risk of human error.
The most common errors and inefficiencies in a manual system include:
There are multiple providers of electronic systems. With electronic systems, buyers prepare a PO using the electronic software system. Many often handle inventory management, too.
Electronic systems enable enhanced tracking of a PO as it travels from the buyer to the supplier. Electronic POs include a PO number, shipping date, billing address, an itemized list of good purchased, quantity, price, etc. The software system will also have entry fields that allow you to easily enter data directly into the PO template. Lastly, you can track the status of the order. It makes the process much faster when compared to manual creation and eliminates a lot of the potential errors.
Here are some things to consider that may signal it is time to automate your PO system. Electronic PO systems will:
Here is how we recommend you begin the process of moving your PO system online:
POs are a part of just about any business’ day-to-day operations. Therefore, we hope this guide helps you determine whether a manual or electronic PO system is right for you, and when it may be best for you to transition from a manual to electronic system.
Our team at FormSwift created a map that shows the biggest import and export of each US state, based on 2017 US Census Bureau data.
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