A purchase order (PO) is a commercial document issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services required. It is a legally binding document that creates a contract between the buyer and the seller. The purpose of purchase orders is to procure materials for direct consumption or for stock, procure services, fulfill customer requirements using external resources, or procure a material that is required in production from an internal source. Purchase orders allow buyers to clearly and openly communicate with the sellers to maintain transparency. They also allow buyers to unnecessarily delay payments, avoid late fees, and for publicly traded companies, inflate their earnings. They may also help a purchasing agent to manage incoming orders and pending orders. Sellers are also protected by the use of purchase orders, in case of a buyers refusal to pay for goods or services.
A typical purchase order includes the following information:
- PO number
- Date of purchase
- Buyer details
- Order information
- Payment terms
- Delivery address
Purchase orders are usually used by small businesses who are ordering goods in large quantities. They help track inventory and purchase history, and the buyer can order goods in advance without having to pay right away. Similarly, for the seller, purchase orders help track inventory, recurring orders, and avoid duplicate orders.
