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Purchase Order (P/O)

A purchase order (PO) is a commercial document issued by a buyer to a seller, indicating the type, quantities and agreed prices for products or services that the seller will provide to the buyer. Sending a PO to a supplier constitutes a legal offer to buy products or services. Acceptance of a PO by a seller usually forms a once-off contract between the buyer and seller and no contract exists until the PO is accepted.  This document represents the buyer’s intent to purchase specific quantities of product at specified prices. In the event of non-payment, the seller can use the PO as a legal document in a court of law to demonstrate the buyer’s intent and to facilitate collection efforts. Companies usually request POs when doing business with other companies for orders of significant size, as the PO reduces the risks involved. A purchase order usually contains: PO number, shipping date, billing address, shipping address, requested terms, and a list of products with quantities and prices.

There are at least three types of purchase orders – single-use, blanket, and electronic.

Single-use:

One class of purchase orders is the single-use purchase orders used by retailers. The purpose of a single-use purchase order is to keep track of a single order from a supplier until all items have been received from that order. Once all items have been received, that purchase order number can no longer be used.

Blanket:

Blanket purchase orders are typically used by organizations to keep track of money that was spent for a particular department or for a specific project (such as IT equipment upgrade). Another general use of the blanket purchase order is to limit spending during a specific timeframe or for a specific project.

Electronic:

Many companies (and organizations) now use electronic purchase orders following specific B2B standards, such as, ANSI, EDIFACT or RosettaNet.

 

 

 

Sources

  1. Wikipedia
  2. Dobler, Donald W; Burt, David N (1996).Purchasing and Supply Management, Text and Cases, Sixth Edition, p70, Singapore: McGraw-Hill.

 

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