A Purchase Order (PO) is a buyer generated document that authorizes the purchase transaction. When the purchase is accepted by the seller, it becomes a contract binding both parties.
What is Purchase Order? Definition, Meaning, Creation and Presentation
1. What is Purchase Order? Definition, Meaning,
Creation and Presentation
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2. Definition and meaning of
Purchase Order (PO)?
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A Purchase Order (PO) is a buyer generated
document that authorizes the buying transaction.
When the purchase is accepted by the seller, it
becomes a contract binding both parties.
The PO is legally bound when PO is accepted by
the supplier. The Purchase Order document
contains a unique PO number that identifies the
purchase order.
The Purchase Order Number is used to evaluate
whether the ordered products match the goods
received. It is used to match the invoice with the
purchase order to ensure the charges as per the
order.
3. Types of Purchase Order
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1. Standard Purchase Order
In Standard Purchase Order all the key details are known at the time of order made i.e, the items
purchased, quantity, price and delivery schedule etc.
1. Planned Purchase Order
In Planned Purchase Order most of the details like - items, quantity, price and payment is already given
but exact delivery dates are not scheduled. And when you lock down certain dates that you want your
items to be delivered, you can create the releases.
1. Contract Purchase Order
In Contract Purchase Order even the specific item required is not known. In this case, you may agree on
terms and conditions with the supplier, but nothing further is known.
1. Blanket Purchase Order
In Blanket Purchase Order is similar to Planned Purchase Order, here the item is specified with the
delivery details. Basically, you agree to a maximum quantity for a specified period and then order any
amount beneath the quantity.
4. What does a Purchase Order contain?
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A Purchase Order contains -
● Description
● Quantities purchased
● Price
● Discounts
● Payment terms
● Billing address
● Specific brand name or model number
● Date of performance
● Delivery date
5. Pros of Purchase Order
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● Avoid duplicate order
The Purchase Order documents provides accurate information about what the company has ordered and
from whom. And the PO serves as a check of invoices on what needs to be paid.
● Serves as legal documents
The Purchase Order serves as a legal document for the supplier as well as buyer for future references.
● Keep track of the upcoming orders
The Purchase Order keeps track of the upcoming orders.
● Better budgeting
The Purchase Order helps in better budgeting as funds are required before the PO is issued.
● Faster delivery
As the PO tracks the delivery of the specific item, the company can schedule when it should buy.
6. How does Purchase Order work?
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The purchase order process is a journey of the PO from creation through the purchase order approval,
dispatch, delivery, invoicing and closure. The Purchase Order is an important factor of the inventory
management.
➔ Once the vendor accepts the Purchase Order, the vendor outlines the required items, agreed price and
delivery expectations and payment terms.
➔ Upon receiving the PO, the supplier draws out the required items from stock and sends them for
package and shipping.
➔ The PO is then used by the suppliers to track inventory available against the inventory ordered and
shipped to the buyers.
7. Steps involved in Purchase Order Process
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➔ PO creation - PO is created from approved purchase orders.
➔ Purchase Order Approval - PO approval is made after budget and document verification.
➔ PO dispatch - After approval, the PO is forwarded to the selected vendor.
➔ Binding contract - Once the vendor accepts the PO, a legal binding is created.
➔ Goods Delivery - The vendor delivers the goods and the buyer does a quality check and notifies
incase of defects.
➔ Three-way Matching - The buyer performs three-way matching i.e, through Purchase request, PO
and invoice.
➔ PO closure - After the PO matching if there are no variances, the PO is closed.
8. How to automate Purchase Order process?
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Buyers use a Purchasing Software system in order to
automate the PO process. Automated PO’s are used to
send electronic PO’s to vendors which eliminates the
manual efforts as well as manual errors during purchasing
orders.
The purchasing order module of ERP software is used to
manage PO process efficiently. So, let us know more about
the benefits and use of ERP software for your business
9. What is an ERP System?
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An Enterprise Resource Planning (ERP) system is a software which is used to manage tasks such
as accounting, procurement, project management, supply chain operation, risk management and
compliance. It helps to plan, budget, report on the organisation’s financial results.
ERP system is used for -
● Financial management
● Supply chain and operations management
● Project management
● Capital management
● Business intelligence
● Customer Relationship Management
10. Benefits of ERP Software
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● The ERP Software provides access to information to various departments of the company.
● The regular use of an ERP Software reduces the risk of errors as well as re-entry of data.
● Helps to track total availability of raw materials instantly.
● Manages invoices and DC.
● Helps to set auto-notifications and reminders to follow-up pending payments.
● With the help of the automated system, you can get automated reports with regard to purchases,
inventory and orders. These reports help in decision making.
● As the ERP system provides entire Purchase Order data on a single platform, it improves the
efficiency of organising the entire process.
● The ERP system promotes accuracy and transparency of data.
11. How can SalesBabu ERP System contribute to your business?
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SalesBabu ERP provides 360 degree access of the entire data to the users. It allows the companies to
reduce their operational cost and streamline the entire process in a single platform. It provides multiple
benefits like -
● Production management
● Inventory and warehouse management
● Accounting management
● Manages sales activities
● Lucrative purchase management
● Engineering
● Business intelligence
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