A purchase order, also known as a PO, is a document used to purchase goods or services from a supplier. It is an integral part of the procurement process and can be used in business-to-business and business-to-consumer transactions.
This guide will discuss the different types of purchase orders, their formats, and how they are used. We will also provide you with some helpful templates to use in your own business!
What is a Purchase Order?
A purchase order is a document that orders goods or services from a supplier. It includes what is being requested, the quantity, and the price. It also provides information about the buyer and the seller, including contact information and payment terms.
When is PO released?
Its release is influenced by various factors such as the urgency of the product, supplier performance, and others. Typically, it is released when the supplier has been approved and the product is available.
What are the benefits of using purchase orders?
There are many benefits to using it,
- It helps to ensure that the right products are ordered and received
- It can help to expedite the procurement process
- It can be used as a communication tool between buyers and suppliers
- They can help track inventory levels
- They can serve as a purchase history
- They can be used as a basis for payments
- They help to protect the buyer against fraud
- It gives you peace of mind that you’re ordering the correct product
- Saves time by preventing duplicate orders
- Prevents confusion by having a purchase history
- Boosts confidence by tracking supplier performance
- Reduces stress by facilitating returns and replacements.
Types of purchase orders
Standard purchase order
It is the most common type. It is used to purchase goods or services that are not time-sensitive and have a known price.
Time & Materials purchase order
It is a document used to purchase goods or services on an as-needed basis. These types of orders allow for flexibility in terms of the timing and amount of products or services purchased.
The buyer can use this type of order when they can’t predict how much they will need. The supplier will then bill the buyer for the actual items or services provided, plus any shipping or service fees.
Fixed Price purchase order
A purchase order is an agreement between a buyer and seller in which the buyer agrees to pay a set price for a good or service.
Depending on the situation, either party may change its mind after an agreement has been made. For example, this can happen if significant price changes occur between when initially agreed upon and when they’re delivered or used for service purposes; however, no one wants this, so both parties should protect against such uncertainty by deciding prices early.
Blanket purchase order(BPO)
It is a commitment by a company to buy goods or services from a supplier over a specific period. It is also known as an open-end contract.
A BPO can be used when the needs of the buyer and supplier are relatively stable, and the quantities purchased and delivered are not expected to change drastically on a month-by-month basis.
Planned purchase order
It is that you make in advance and then confirm later. It can track potential orders and make sure you get the right product at the right time.
It is used to purchase items that are not readily available, such as long lead-time equipment or components.
Rush purchase order
It requests products or services delivered immediately, often with shortened delivery times and expedited shipping. They’re used in cases where there’s an emergency or a time-sensitive situation that needs to be addressed.
It is processed more quickly than others, often requiring fewer steps and approvals. This can help ensure that the products or services needed are delivered as soon as possible.
Emergency purchase order
It is created in response to an unexpected event or emergency. Therefore, it typically has a short turnaround time and may require special approval procedures.
Contract purchase order
It is created as part of a contractual agreement between two or more businesses. It specifies the terms and conditions of the purchase and any associated shipping and handling costs.
Purchase order procedure
- Determine what is being purchased and the quantity needed
- Confirm that the funds are available
- Draft it, including the product information, quantity, and price
- Get approval from a supervisor
- Send it to the supplier
- Receive and inspect the product(s) upon delivery
- Make payment to the supplier
- File it for future reference
How to create a purchase order in SAP
To create it in SAP, you must use the creation wizard. The creation wizard is used to create purchase orders for goods and services. The creation wizard will allow you to specify the following information:
- PO number
- purchase date
- shipping date
- terms of sale
- item description
- item number
- unit of measure
- extended price
- shipping point
- account assignment category
The creation wizard will also allow you to set the following information for service orders:
- service description
- service number
- billing date
- due date.
Templates for purchase orders
We’ve provided some helpful purchase order format excel to download:
Contract list Template
What is a purchase order vs. invoice?
They are both documents used in the procurement process, but they serve different purposes.
Former is a document used to purchase goods or services from a supplier. It is an integral part of the procurement process and can be used in business-to-business and business-to-consumer transactions.
An invoice is a document that records the sale of goods or services from one party to another. It includes the details of the items sold, the price, and applicable taxes or discounts.
What are purchase order costs?
Various factors go into purchase order costs, but the main ones are labor costs, insurance, duties, fees, and freights.
Labor costs include employees’ salaries who purchase or order goods and materials. In addition, insurance costs may be incurred when purchasing high-value items or shipping goods across borders. Duties and taxes are levied by governments on imported or exported goods, while freights are the costs associated with transporting goods from one place to another.
How does a purchase order differ from a sales order?
A purchase order is generated by the customer and issued to the supplier. It confirms the purchase of the goods.
But a sales order is a document generated by the supplier and issued to the customer. It confirms the sale of the goods before the fulfillment of the order.
A purchase order is a written request for goods or services from a supplier. It should include the following information: what is being ordered, quantities, delivery date, and price.
It confirms that the buyer and seller agree on the items delivered and when they will happen. This blog post covers the different types, creation processes, and templates. Hoping you found it helpful!