A purchase order is a formal document that is primarily used for business and commercial transactions. The purchase order or PO is issued by the buyer and submitted to a vendor or supplier.
According to an article by Procurify, there is a major difference between a PO and an invoice. The former is created by the buyer; whereas, the supplier or vendor is responsible for issuing an invoice to the buyer.
Importance of a Purchase Order
Purchase orders are one of the most basic and widely used forms in business. Most companies and establishments use at least one form of purchase order to facilitate business transactions. The following are just some of the primary reasons why a PO is an important business document.
Documentation Purposes. When it comes to business and profit, the importance of documentation cannot be emphasized enough. Whether it is a formal contract, a job order, a deed or a title, a verbal understanding is rarely enough. There must be physical documentation as proof and evidence that it took place. It is the same case with purchase orders. When a client or company has the intention to make a purchase from a supplier, the standard protocol usually calls for a formal request to buy. This intention can be better represented through a formal purchase order form. But the form isn’t just for the sake of following rules; it also helps promote accountability and a more organized transaction. Leaving a paper trail can especially help if either party (buyer or seller) runs into a problem or issue, since there is a document that they can refer back to. Facilitate Large Purchases. Especially in business and contract work, purchase order forms are supposed to help facilitate the transaction between supplier and buyer. Whether it is construction materials, bulk retail orders, or several furniture items, purchase orders are particularly applicable when it comes to large quantities or wholesale orders. To illustrate, if you are a small business and would require several equipment or fixtures, most suppliers would require clients to make a formal purchase order because it is not simply buying one or two items. The products or items and their quantities must be explicitly stated for the record and for the information of both the buyer and the supplier. Again, it goes back to a matter of practicality and efficiency when there is formal documentation especially for sizable and substantial purchases. Clarity and Control. One of the most fundamental reasons a purchase order is needed is because it is a mechanism for control. And as discussed previously, it helps promote not only accountability but also clarity for both parties involved. The form itself is essentially a bid and is a physical representation of the intention to conduct business. Suppliers can keep better track and control of transactions when a formal purchase order is present. The usual process is that the vendor or supplier gives the prospective buyer a price quote before the latter submits a purchase order. Doing this can potentially reduce any misunderstanding or confusion between the two parties. Essentially, a purchase order is just one step forward towards reaching a formal agreement and establishing a business transaction between the buyer and vendor.
Tips for Creating a Purchase Order
A purchase order form is pretty standardized across most industries. But if you are customizing your own form, it might be helpful to consider a few tips and reminders. Keep in mind the following the next time you are tasked to craft a purchase order.
Include Contact Details. Although this is a no brainer, it is still worth mentioning that you shouldn’t forget to input the complete information of both the supplier and the buyer. After all, it is a transaction between two entities or parties who could potentially engage in business. Make sure to include the complete name, address, email address, and working contact numbers. It is also helpful to include the point person or contact person to clarify who the PO is addressed to. The format of the form is also pretty standardized; so much like a letter, the recipient information and sender details are found at the beginning of the page. Mind the spacing and margins of the form as well. Lastly, you can include a business or company logo as a document header to make it more professional and standardized. Use Microsoft Excel. If you are looking for a fast and easy way to create a purchase order form, it is recommended you use a spreadsheet application. You can use Excel, Google Sheets or even Apple Numbers- whatever application you are most comfortable with. You can automatically input the items, quantities, and price. What’s more, Excel comes with a number of free templates that you can easily edit. Alternatively, the templates from the collection above are likewise editable and downloadable. Using a template will definitely save you more time and effort. With a predesigned template, you do not need to start from scratch. But if you prefer to use a word processing tool, Microsoft Word is also an option. You can simply insert a table to the document or use an existing template from the Word template gallery. Always Follow Through. A purchase order is not merely a piece of paper, it is a crucial part of a process. And being a process, the follow through is important. In other words, you need to be able to see your promise or intention through. If you are the buyer, make your intention clear and be firm in your decision. Especially if the price is agreed upon and the terms have been laid out to both parties, then there will certainly be expectations involved. The same principle applies to the supplier as well. A reliable supplier is able to give the buyer an appropriate response. For instance, they can give an estimated lead time or delivery date of the items or products. Being able to follow through is essential in maintaining a good business or working relationship. If both buyer and vendor are able to keep their end of the bargain, then the chances of the relationship becoming more than just a one-time transaction is increased. Be Specific. Another tip to consider is specificity. As much as possible, you want to minimize any opportunity for confusion or misunderstanding. This means crafting a purchase order that is specific and direct. A PO that is too general or ambiguous may need further clarification; so it will benefit both parties if the buyer can cover the specifics and anticipate any potential questions. Aside from providing the price and quantity, make sure to include the item or product specifications in the purchase order as well. You can have a designated column labeled item description. If you have the item code, then much better. If you are in doubt, you can contact the supplier first to confirm or clarify prior to submitting the purchase order. For example, with the numerous variations of construction materials, it can be easy to get the product wrong. Thus, you need to describe the make, model, or specific material of the item.
How to Create a Purchase Order
To create a basic purchase order form, it needs to have a certain layout or structure. And if you are looking for a ready-made template to use a blueprint or reference guide, you can choose any of the free templates above. Select one that meets your needs and simply follow the step-by-step instructions below.
Step 1: Format
The first step is establishing the right format. As discussed earlier, a purchase order form is typically standard all throughout. And although the finer details may vary, it is best to stick to what is standard and accepted. If you don’t know where to begin, the best thing to do is to start with a template or at least use it as a reference guide. You can use any application you prefer. But Microsoft Excel is a tool that’s commonly used to create purchase order forms. The best thing about using a template is that it is already formatted for your use. You can simply input or change the details and instantly save it as your own.
Step 2: Contact Details
After you have a solid format in place, the next step is to input all the important contact information. Since a purchase order can be considered a cross between a letter and an invoice, it must have a recipient. This section is reserved for the recipient or the supplier’s contact details. Likewise, if you are the buyer or the one placing the purchase order, your contact information is vital too. Information such as the complete name (or company name), business address, email address, and contact number should be provided. It is also recommended that you include your organization or company logo at the top of the page to make it appear more professional.
Step 3: Item Description
A vital section of a purchase order form is the order itself. The buyer should describe and enumerate, in detail, the products or services they intend to purchase from the supplier. This is usually presented in a table format. List each item down individually with their corresponding quantity and price. You can add a brief description of the item as well under the item or dedicate another column for the product description. And as already discussed earlier, it is important to be specific when it comes to the product description and dimensions. As a buyer, you naturally want the supplier to provide the correct item with the right specifications.
Step 4: Terms and Signature
The last step is to place your printed name and signature at the bottom of the form. A purchase order form is a transactional business document; thus, there needs to be a sender. Along with your name, you can include your designation or position under the signature line. And if applicable, you can also enumerate the terms and conditions of your purchase order. Although it is more common in invoices and billing statements, purchase terms or even just a couple of notes for the supplier may be indicated under the table in your PO form.
FAQs
What is meant by purchase order?
A purchase order is a commercial document that is submitted by a client or company (the buyer) to a supplier with the intent to buy an item or product.
What is the purpose of a PO?
The purpose of a PO is to formalize and document a transactional order (of goods or services) placed by a buyer to a vendor or supplier.
How does a purchase order work?
A buyer places or submits a purchase order (PO) to a seller, vendor or supplier and specifies the items they intend to buy in the PO form.
Creating a purchase order form is fast and simple when you use a predesigned template. Browse the wide selection of editable and printable templates above to customize your own purchase order today!
