Everything You Need to Know About Purchase Orders
Purchase orders are a vital component of any successful business. Given how important they are, it’s surprising how many companies use them incorrectly, or even not at all. As experts in distribution, fulfillment, and warehousing, we wanted to provide a clear explanation of what purchase orders are, and why they’re so important to your business.
What is a purchase order?
A purchase order (also called a PO) is a legally binding document that is sent from a buyer to a supplier that details the goods or services the buyer wants to purchase. Purchase orders are typically used when a buyer wants to purchase supplies on account. This means the supplier delivers or ships the items prior to payment.
Why are purchase orders important to your business?
Many organizations don’t use purchase orders because they have a good working relationship with a vendor or they just don’t want to deal with the paperwork. But implementing a purchase order system is worth the extra time and paperwork no matter how solid your relationships with vendors are.
A purchase order provides legal clarity and instructions for the seller, as well as a paper trail that can be used as a point of reference if the delivery doesn’t go as planned. In the event something goes wrong and there’s no purchase order, then it can be a nightmare to determine where the mix up occurred and which party is at fault. In fact, there’s a possibility that a dispute may escalate to a more complicated legal situation.
Along with legal protection, purchase orders are significant in both inventory management and payment tracking. They also allow the supplier to track when payments have been made on specific orders. Buyers hold copies of orders they place to monitor timely receipt of the items.
What information is included on a purchase order?
Purchase orders may differ from company to company, but all will certainly include a description of the items being ordered and the quantity. Perhaps the most important piece of information is the unique purchase order number. That’s the number that the buyer will use to make inquiries about incorrect, damaged, or delayed shipments. Vendors will use the number to track payments. Also, when the vendor ships the order, they’ll include a packing label that lists the purchase order number, so when the buyer receives the goods, the order can be marked complete.
Other details that may be included on a purchase order are:
- Item numbers
- Cost per item
- Total cost
- Terms of payment
- Shipping address
- Shipping method
- Expected delivery date
- Any discounts being offered
- Contact information if there are any questions
How is a purchase order different from an invoice?
Buyers draft purchase orders. Sellers, on the other hand, prepare invoices. Both the purchase order and the invoice contain similar details. The invoice references the purchase order number as well, in order to confirm that both documents contain the same information and correspond to each other. Many of the technical details found on the purchase order are not included on the invoice.
If your business needs to implement a purchase order system, or generate any other shipping documents, then contact Taylored Fulfillment Services, a fully integrated third-party logistics provider specializing in wholesale, retail, and direct-to-consumer unit fulfillment. Established in 1992 and headquartered in Iselin, New Jersey, they operate 1.5 million square feet of warehouse and distribution space strategically located near the nation’s busiest ports, including Los Angeles, Long Beach, and New York. Since its humble beginnings in 1992, Taylored Fulfillment Services has grown to become a national leader in distribution, fulfillment, and warehousing.