A repository of acronyms, jargon, and useful definitions perfect for eCommerce founders & marketers like yourself.
In simple terms, a purchase order is a contract that is drawn by the buyer or the purchasing department when they want to purchase goods from the sellers/suppliers. It acts as proof for the seller in case of non-payment by the buyer. Buyers should also ask for a purchase order confirmation which indicates that the seller has agreed to supply the goods at the said price. A purchase order has the following details in it:-
• Company's name and address
• The date of the order
• A tracking number
• The seller's name and address
• Item type
• Product number, model number, or SKU
• Item quantity
• Item price
• Requested delivery date for the order
• Billing address
• Shipping address
• Subtotal including taxes, shipping costs, discounts, and other adjustments
• Payment terms (such as due upon delivery or within 30 days)
There are 4 types of purchase orders which are as follows
1. Standard purchase order(PO)- this is the most commonly used type of purchase order. Standard PO includes basic details like terms and conditions of the order, the list of items which are needed along with quantity and price, date of delivery, and location where the goods are to be supplied. For example, standard PO can be used to order basic items like pens and paper in an organization. Few organizations might not raise a PO for small orders but some might do which will be kept as a reference document.
2. Planned purchase order(PPO)- planned purchase order is almost the same as the standard PO but it does not provide any details of delivery. Neither date nor the location. For example, a buyer wants a total of 2400 units of a product. But all these units are not required at once, 200 units are required each month. Therefore, the buyer will issue a PPO to confirm the order, and every month a release will be created for the delivery of goods on a specified date.
3. Blanket purchase order(BPO)- Blanket purchase orders are also known as standing orders. It is similar to a planned purchase order(PPO). Along with the delivery details, it does not include quantity and price details also. It is used by buyers who are unable to predict their requirements correctly. For example, printing paper gets finished because of more customers. Now, this was an expected event. In times like these, a BPO can help restock printing paper.
4. Contract purchase order(CPO)- contract purchase orders are created to specify terms and conditions between the buyer and the seller. A typical CPO does not include the list of items to be purchased, their quantity, and price. It also does not include delivery date and location. For example, a CPO may specify that the buyer can purchase goods from the supplier at a discount of 30% given that they both deal together for a long period.
1. They help you avoid duplicate orders- If it is a small business, then tracking purchase orders can be a task of one person. But if it is a large-scale business, then multiple people will be required to keep which may result in duplication of orders.
2. They’re required for some financial audits- purchase orders are essential documents for audits wherein managers have approved the orders.
3. They can help you deal with the problem of price increases- If a supplier changes prices between the date of order and date of delivery, a purchase order clarifies the agreed-upon price for both parties and clears up a disagreement.
4. They help you keep track of incoming orders- Software keeps us updated with the stock we hold, shipping status, etc.
5. They ensure clear communication- With the help of the purchase order, we can clearly state our requirements to the seller. This reduces confusion.
6. They’re legal documentation- In case of any conflict, purchase orders act as legal documents which protect both parties.