Purchase Order

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What is a Purchase Order?


For the success of any company, tracking of inventory, ordering supplies and sellable goods is essential. For a well-organised purchasing process, it is important to look at the purchase order. But many companies fail to understand the importance of purchase order and their benefits. For packaging in purchases, it is better to use sustainable packaging as it is an eco-friendly process. We at Moglix believe in eco-friendly and earth-friendly packaging methods for our products.

Benefits of Purchase Order


Some of the benefits of using purchase orders are:
  • Better accuracy in both financial and inventory management.
  • Standardised budgeting as the funds must be made available before issuing a purchase order.
  • Quick delivery because the purchase order schedules delivery as per the requirement of the buyer.

Elements of a Purchase Order


The purchase order contains the following information and companies’ name and the date of the purchase order. The elements are.
  1. Product’s name or specifications
  2. Exact Quantity of the product
  3. The Price of the product
  4. Any other additional terms like discounts etc.

The purchase order can also be said as a request made for goods at the buyer’s listed quantity and prices.

Reasons Companies Use Purchase Order


Some of the common reasons concerning the use of purchase order by companies have been enumerated below:

1. Purchase Order Provides You Legal Protection

A purchase order is a legally binding agreement that binds both the parties, i.e. the buyer and the vendor. If anything goes wrong in the purchase, the purchase orders will help in proving it. To convert a purchase order into a legally binding document, it must be acknowledged by the vendor.

2.Tracking of Orders Becomes Easier

The PO helps you in maintaining a record for all the goods and services ordered by your company. It also keeps an account of your method of payment and the scheduled arrival time. The invoice numbers assist you in managing the invoices and also track your orders. By way of this document, you are well aware of your orders’ delivery time and date.

3.It Assists you During Auditing

Suppose your company gets audited, you will benefit through your purchase orders. You can provide the auditors with the document to cross-check with your invoices as well as slips. If you don’t have a purchase order, you have to go through a hard process of showing receipts, invoices and emails with the seller.

4.Eases the Communication Process with the Seller

If the seller receives the purchase order, there is a very low possibility that you will not receive your shipment on time. The communication with the vendor is very flexible. There is no chance of any miscommunication between both the parties.

Steps in Purchase Order


The steps in a purchase order for a buyer are as follows:
  1.  The management notifies about a purchase to the purchasing department. It is also done by issuing a Requisition form for purchase.
  2. After getting approval of the department’s order, the purchase order is properly filled explaining the purchase details.
  3. The purchase order is sent to the vendor/seller to decide whether they will fulfil the order. If approved, it becomes a legally binding document.
  4. The purchaser then sends payment at the decided price and if not at an agreed date later on.
  5. Lastly, the seller delivers the order along with the invoice. The purchaser’s finance department then checks the invoice to ensure if both the documents have the same amount.

Purchase Order Format


To create a purchase order, you need to include the following information:

1.Header

Mention your company’s details, including your company name, date of the purchase order, address of the business and the order number.

2.Information Related to Vendor

Specify the original recipient of the purchase order. Here you need to mention the name of the vendor company, your contact name, and the vendor company’s business address.

3.Shipping Address

Mention the place where the order needs to be sent and the method of shipping like via air, road, shipping terms, and the expected delivery date.

4.Order Details

All the products mention the product’s code, a proper product description with name, specified price, and description.

5.Complete Summary

At the end of purchase order provide a subtotal of the amount by specifying the discounts, taxes, the total amount with the shipping costs.

Conclusion

Purchase order ensures easy tracking of goods. It also prevents fraud. What matters after approval of the purchase order is the safe delivery of the product. The product to be delivered properly needs good packaging. Hence, the best packaging method is sustainable packaging as it does not harm the environment and keeps the product safe.

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