In a small scale business, purchases are often made without receiving any kind of proper requisitions from the purchase department. However this does not happen at a corporate level. In the companies, a purchase of material is made only when a proper purchase order is issued to a vendor or supplier. A purchase order is a formal document which is an initial offer made by a buyer to a seller, indicating the types, quantities and price of the goods or services to be bought. Many entities use editable purchase order templates and modify them so as to make their own specific purchase orders.
A P.O is used to control unnecessary purchase of goods from the suppliers. Usually a system is maintained in the entity that a P.O will be generated only when the inventory of any material has reached to a certain minimum level. Purchase orders are documents of an entity which are used on daily basis. Purchase orders enable the buyers to clearly explain their demands and requirements to suppliers. Sellers are also secured by a purchase order if in case, the buyer refuses to make payment of goods ordered. Some of the amazing purchase order templates are available here for you. You can use these templates for your business purposes as all of them are editable.
Important Elements of a Purchase Order
Following are some of the important elements of a formal purchase order:
- Both the parties (buyers and sellers) should have the knowledge about who is and will be involved in every purchase.
- Every purchase order should clearly mention a purchase order number. It is a reference number which is used in cross-checking the purchases with the relevant purchase order(s) and ultimately the goods delivered. It actually minimizes the risk of erroneous payments.
- It should clearly indicate the date on which the order was actually made.
- It should contain the correct information e.g, address and contact information, in order to make sure that the goods are delivered to the right place.
- A purchase order must be made with due diligence. Make sure that no item is included to or excluded from the P.O erroneously.
- Make sure that the purchase order properly contains the amount of purchases, the calculation of taxes, the discounts offered by the supplier and all other relevant information.
Other Purchase Order Templates
Benefits of Purchase Orders
Here are some of the key benefits of using purchase orders:
- The most important benefit is that a purchase order helps to avoid duplicate orders.
- Matching the invoices for similar products can be difficult. A purchase order, therefore helps to check for the invoices that are to be paid.
- The purchase orders can help a great deal in keeping a proper track of the orders. What has been ordered and from whom, can easily be verified with the help of a P.O.
- A purchase order serves as a contract and it provides a legal protection to a seller as well as to a buyer. It helps to avoid any future disputes between the parties.
- A purchase order can be of a great help to a company in case of both internal and external audit. It helps to keep proper records of the purchase transactions that the auditor may require in order to apply different audit procedures.
- A well organised and effective purchase order system benefits the business in managing the inventory and simplifying shipping process.
- A formal purchase order document includes clear instructions and ensure effective communication between the buyer and the supplier. Moreover, a purchase order also helps to make things easier for the suppliers.