A purchase order (PO) is a commercial document and first official offer issued by a buyer to a
seller, indicating types, quantities, and agreed prices for products or services. Acceptance of a
purchase order by a seller forms a contract between the buyer and seller, so no contract exists
until the purchase order is accepted. It is used to control the purchasing of products and services
from external suppliers.
What is the Purpose Of Order?
Purchase orders are typically used when a buyer wants to purchase supplies or inventory on account.
This means the supplier delivers or ships the purchased items prior to payment, with the purchase
order serving as its risk protection. Along with legal protection, purchase orders are significant in
both inventory management and payment tracking. Purchase orders help suppliers compare ordered inventory
to inventory shipped and on hand for accuracy. 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 are the flow of Order Processing?
Once the buyer submits the order, an in-progress purchase is created. The order's status remains
in-progress until the ordered items have been received by the buyer's warehouse. Once the
inventory is physically received, it is typically scanned into inventory and matched to the proper
purchase order. The purchase order is marked as processed or requiring payment. The buyer
completes its responsibility for the purchase when it remits payment. To ensure accurate credit for
payment, the payment should indicate the PO number or company account number
How the Supplier Uses the Purchase Order?
Suppliers use purchase orders for order fulfillment and payment processing.
Upon receipt, the purchase order is used to pull purchased inventory for packaging and shipping.
Once the inventory is pulled, an invoice is prepared based on the items orders and prepared for
shipment. When the products are shipped, the supplier records the shipment in its inventory
system. The purchase order is filled electronically, with paper copies often filled, as well.
The order is marked as filled or waiting payment. Important payment reminder dates and
deadlines are set. This is important to the supplier for good payment monitoring and enforcement
of credit policies.
Payment of a purchase invoice
Try and pay your purchase invoices on time, if there is a problem with cash flow try and sort out a short term payment plan. If you always refuse to take supplier phone calls they are likely to take
further action and maybe try and claim the money back through the county courts. If this were to happen, all the costs and interested incurred by your supplier would then need to
be paid by you. There are a few things you could do to try and delay payments of purchase invoices if cash flow is tight. The first is to only make payments when they have been requested from the supplier. You
could also introduce a cheque run date: such as once a week or once a month. Once you've set up a system, it will allow you to keep a better control on your finances and your suppliers would then
know when they would be paid, and know not to expect a cheque the same day as their phone
call. the items.
Supplier Statement:
Your supplier should supply you with a monthly statement of account. Check to see if you have received all the purchase invoices and also to see if all payments that you have made have been
posted correctly. If there are any discrepancies, contact them to try and get the problem sorted. Try and keep a good relationship with your suppliers: there is nothing worse than phoning up with
an order only to find out that they will not ship any goods to you until payment is made for an outstanding purchase invoice or they will only offer you cash with order.
Filing a purchase invoice:
Suppliers use purchase orders for order fulfillment and payment processing. Upon receipt, the purchase order is used to pull purchased inventory for packaging and shipping.Once the inventory is pulled, an invoice is prepared based on the items orders and prepared for
shipment. When the products are shipped, the supplier records the shipment in its inventory system. The purchase order is filed electronically, with paper copies often filed, as well.The order is marked as filled or waiting payment. Important payment reminder dates and
deadlines are set. This is important to the supplier for good payment monitoring and enforcement
of credit policies.
See Also: Purchase Invoice | Purchase Return | Box/Cartoon Entry