46+ Sample Purchase Orders

What Is a Purchase Order?

The rise of online shopping has made it one of the largest markets for consumer purchases, accounting for about 14.1% of all retail sales on a global scale. A study by Statista even predicts the number of digital buyers to grow from 1.66 billion to 2.14 billion by 2021. While many of us are guilty of browsing shopping apps and websites for pleasure, what happens when we finally decide to buy?

To veterans of online shopping, placing an order is the initial but often the most exciting stage of the process. You fill up an order form to list the details of the item you want, send it to the vendor, and receive a sales invoice for confirmation. In cases like this, it’s clear how purchase orders help streamline transactions for your business to benefit from. It’s an effective way to improve productivity for your small business by making the most out of what you have.

In the business world, we define a purchase order as a document that buyers send to sellers with the intent to make a purchase. It’s a document that provides evidence of everything that goes in and out of your business to keep you on top of your financial activities. These business forms contain key information about the order to help clarify the dealing before both parties can move forward with the transaction. And once the seller accepts the PO, it binds both parties to a legal agreement that they must commit to. Failure to do so may lead to unwanted issues that may potentially hurt your business image.

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Advantages of Using Purchase Orders

Should your small business start using purchase orders?

This question might have crossed your mind one too many times before. Although some small businesses can do without purchase orders, as your business continues to grow, you’ll begin to recognize the crucial role that this document plays in streamlining company operations. Customers start to demand more, and stocks start piling in, making it impossible to manage this aspect of your business effectively. There are several benefits that a purchase order can bring to your business. These are as follows:

To Get Orders Right: An apparent reason to use purchase orders is to ensure that order details remain accurate. Proper documentation of orders leaves less room for errors compared to orders placed verbally. It’s easy for a person to forget what they ordered if they fail to write it down, which will likely produce inaccurate information. The PO will clarify everything from the item description down to the delivery instructions for your team to process in an orderly fashion. Unless you’ve automated your ordering system, you might want to consider double-checking your POs for mistakes caused by manual labor.To Track Projects and Purchases: When your business expands, so does your consumer list and the number of orders that come your way. The PO allows you to monitor the number of orders that come in and out of your inventory to ensure the correct delivery of items. It can also be an asset when auditing, especially for corporations with large accounts that require careful tracking. Duplicate orders, for instance, are a massive problem among many SMEs. But with POs, you can easily track the items and recipients of each order for another successful transaction.To Enhance Process Efficiency: If you need one good reason to use a purchase order, perhaps its ability to simplify inventory management is enough to convince you. Small businesses that hope to expand their operations in the near future must always consider the risks brought by stock shortages. Without clarity over your inventory, you may experience a significant loss in sales and profit. That is why POs are necessary to plan and control your company’s cash flow.To Use as Legal Evidence: As an official business document, purchase orders leave a paper trail of past transactions with clients to help resolve potential disputes involving such. These purchase orders serve as legal evidence to protect or support whatever claims each party would raise in a court battle. And since a purchase order acts as a binding agreement, it sets clear expectations of when, where, and how deliveries are to be executed by the supplier. That way, both parties can stay committed to the end goal.To Ensure Good Data Quality: You’re likely to keep records of new and repeat customers for future transactions. And because you already have their information stored in your system, conducting frequent updates and follow-ups can be done effortlessly thanks to the PO assignments made at the time of order. If you allow last-minute changes and add-ons prior to the delivery date, you can easily search for a customer’s order data and perform the necessary revisions immediately. To Study Market Trends: The consumer market can be unpredictable. Many factors contribute to the changes in market trends, which you can often identify through the use of purchase orders. Looking into your PO history provides useful insights into your company’s performance during economic expansion and contraction. It also allows you to make strategic decisions at every stage of the market cycle to ensure that your business may respond to these changes successfully.

Types of Purchase Orders

We classify purchase orders into four different types: standard purchase orders, planned purchase orders (PPO), blanket purchase orders (BPO), and contract purchase orders (CPO). These sales documents differ according to the information known at the time of order. Considering how these POs vary could save you the time and money that come from poor management. With that in mind, let’s define each type in the items below.

Standard Purchase Order: These are perfect for one-time purchases. Standard purchase orders are the easiest to understand, as it focuses on the specifics of the request, such as the price, quantity, delivery date, and payment terms of the item ordered. It also caters to orders made sporadically by a customer or a business that wishes to replenish office supplies and other necessities for the time being. Anyone who places an order using a standard PO must know exactly what they need and when they need it to have it for smooth processing. Planned Purchase Order: It’s common for a business to partner with a supplier as their go-to source of goods or services. It’s a wise choice for companies that want to establish long-term purchase agreements with suppliers or buyers for stability. However, the delivery schedule of the ordered items will remain tentative until the buyer provides a release to confirm the details of the order. This would mean that buyers only submit the PO in advance with a mere estimation of what they need for their company. Blanket Purchase Order: What’s great about a blanket purchase order is its flexibility. You know what your company will need during a particular period, except that the price and quantity of the order are still uncertain. Contrary to the previous type, a blanket purchase order is most suitable for unpredictable circumstances, primarily for situations where you know you need something, but you’re unsure as to when. It’s an ideal approach for buyers that want to negotiate on the lowest pricing by placing multiple orders for their future needs. Contract Purchase Order: From the name itself, this type of purchase order can act more as a high-level agreement rather than a regular deal. It sets concrete terms and conditions in the arrangement and streamlines all future transactions between the two parties. It’s the most formal arrangement among the bunch, securing legal protection for those involved. Although the general components of the order remain undefined, a contract purchase order thoroughly discusses every other meticulous detail beforehand.

Purchase Orders vs. Invoice

As consumers, we don’t pay too much attention to the kind of documents involved in a transaction. But when starting a business, there are some terms you might want to familiarize to recognize their importance in your daily operations.

In the sale of goods, you come across the terms “purchase order” and “invoice” quite often. While the two words may sound very similar, they each play a distinctive role in keeping your business under control. For one, a purchase order is a document that buyers use to order goods or services from a seller. And because a buyer sends it to a seller, a purchase order comes before an invoice does. It defines the contract of the sale to help set clear expectations of what the buyer needs the seller to deliver as part of the agreement.

An invoice, on the other hand, confirms the sale and notifies the buyer about the payment due. It summarizes all the items that the buyer has agreed to purchase from the seller, reminding both parties of their responsibilities in the arrangement. Like purchase orders, invoices are a vital financial document that businesses must issue as mandated by federal laws. Both documents help clarify the terms of sale to protect your business and avoid conflict with consumers.

How to Create a Purchase Order

By now, you should have a decent understanding of how a purchase order works, what it covers, and why it’s essential for your day-to-day operations. So at this point, creating one becomes the next step on your agenda. It’s common for most people to feel overwhelmed about the thought of making a PO. But contrary to what many believe, the process can be surprisingly easy.

To make a purchase order, you need to know its three main elements: the header, body, and footer. These parts of the PO generally consists of the following:

1. PO Header

The first thing you’ll find in a PO is the header. Apart from the words “Purchase Order” written on the topmost portion of the page, anyone reading the PO will notice a business letterhead. It includes the name of your business, logo design, address, and contact details. You may also add your business and tax registration number if available. Not only does it help with branding, but it also keeps your POs consistent with other company documents to prove its legitimacy.

Other information found in a PO header includes your purchase order number, date of issuance, supplier reference number, and payment terms, as well as a customer’s name and address. Note that each PO must include a unique PO number for proper identification. This component, along with the rest of the details in your PO, must be accurate for easy tracking and formal delivery.

2. PO Body

The body of your purchase order contains a brief description of the goods purchased, along with its quantity, unit of measure, the price per unit, and the total amount. Customers must finalize what they need from a vendor or supplier before filling this part of the PO to avoid problems. As for service-related orders, indicate the scope of the job order alongside the cost for each service. Customers need to be specific and clear about what they expect to receive for businesses to process their orders accordingly.

At the footer of the purchase order, indicate the total amount of all individual items you, or the customer, is requesting. It’s also advisable to present the tax amount and the total after-tax amount for reference. Including pre-tax and post-tax amounts are a crucial part of the PO, as they provide a breakdown of the customer’s total. If applicable, you may also note the date of delivery in the last part of the document. Feel free to include delivery instructions and comments that suppliers must be informed about.

If you have any doubts or concerns about the PO’s terms and conditions, you might want to seek professional advice before drafting your purchase order. It’s a good idea to review the contents of the PO, whether you’re a buyer or a seller, to prevent inconveniences that may delay the process.

While using purchase orders does mean more paperwork and other tedious assignments, it still offers a ton of benefits to businesses that employ it. The key is to implement a proper system that can track and process orders as smoothly as possible. So if you want to succeed in a competitive retail industry, ensure that your purchase order system does the job of keeping your accounts organized and well-managed as you continue operations. It’s even much easier when you have a purchase order template in place to turn a complicated process into a simpler one. Many companies standardize their PO document with pre-defined data to establish efficiency. Unless you want to give your employees a hard time, using a purchase order template is an opportunity you wouldn’t want to ignore.