Purchase Order

What is a purchase order?

A purchase order (PO) is a legally binding document issued by a purchaser to a vendor. It serves as a formal authorization for the vendor to provide the items at agreed-upon prices and terms. A purchase order therefore provides clarity, prevents misunderstandings, and protects both parties.

Key elements of a purchase order.

While the format may vary, a purchase order typically includes the following:

• PO number: A unique identification number for tracking and reference.
• Date: Date the PO was issued.
• Vendor information: Vendor’s name, address, and contact details.
• Shipping information: If relevant, delivery address and requested delivery date.
• Order details: Including:
  • Item descriptions (including model or SKU numbers if applicable).
  • Quantity ordered.
  • Unit price.
  • Taxes (if applicable).
  • Line item totals.
• Payment terms: Net 30, Net 60, etc., and acceptable payment methods.
• Additional notes: Special instructions, shipping requirements if applicable, or references to existing contracts.
• Authorized signatures: Signatures from both the buyer and an authorized seller representative.

The role of a purchase order in procurement.

Purchase orders play many roles in procurement. When a PO is part of the procurement process, the following steps take place:

• Needs identification: Identifying the need for goods or services.
• Vendor selection: Evaluating potential vendors based on price, quality, and terms.
• PO creation: Drafting the PO, including negotiated terms and details.
• PO approval: Securing internal approvals based on company policies.
• PO issuance to vendor: Sending the PO to the selected vendor, creating an order.
• Order fulfillment: Preparing and shipping goods or providing the services requested.
• Goods receipt and inspection: Receiving the order and verifying it against the PO.
• Three-way matching: The PO, the vendor’s invoice, and the receiving documents are compared to ensure consistency before payment.
• Payment processing: Approving and executing payment to the vendor.
• Record keeping: Archiving the PO, related documents, and payment details.

Benefits of using purchase orders.

Particularly in organizations with complex purchasing needs, POs provide many by establishing clear purchasing procedures. Here are some of the major benefits:

• Clarity and accuracy: POs prevent misunderstandings by clearly documenting order expectations.
• Reduced errors: POS provide an agreed-upon record of a transaction, reducing misunderstandings and disputes.
• Spending Control: POs aid in budget tracking and prevent unauthorized purchases.
• Inventory management: POs help track orders and forecast inventory needs.
• Legal protection: POs provide a contractual basis for resolving disputes.
• Audit trail: POs create an audit trail of purchase decisions and supporting documentation.

Modern purchase order systems.

Many businesses use procurement software or e-procurement systems to streamline the PO process. These solutions are characterized by:

• Automation: Automates PO creation, approval workflows, and data transfer to accounting systems.
• Customization: Allows tailoring PO templates to specific business needs.
• Vendor collaboration: Facilitates online communication and document sharing with vendors.
• Reporting and analytics: Provide spending insights and tracking of vendor performance.

How Airbase helps with purchase orders.

Airbase supports two- and three-way matching for efficiency and control.

The process of requesting a purchasing order follows the same intuitive, easily configurable workflows as any spend request, so all POs are vetted by the appropriate stakeholders.

Once a PO is raised, Airbase creates a transaction record with all relevant information for an automatic audit trail.

Invoice processing is easy once an invoice is attached to the transaction file. OCR technology captures the details and creates a bill that is matched against the PO for 2-way matching. NetSuite users can also access 3-way matching to the item’s receipt.