Purchase orders play a critical role in your procurement and inventory management purposes. They help you keep track of the products you've ordered and, once delivered, you can match them against the invoices your vendors issued before making payment. This enables you to plan and budget better, track your expenses, and control your spending. Simply put, purchase orders allow you to manage your business’s expenses better.
And, when done right, purchase orders simplify and make your ordering processes more efficient. There are, however, different types of purchase orders, and you should use the right one in the right circumstances. So, with that in mind, we’ll discuss what a standard purchase order is, when you’ll use it, and how to create a standard purchase order.
What are Purchase Orders?
Before looking at standard purchase orders in more detail, let's first recap what purchase orders are. At its core, a purchase order is a legal document that you‘ll send to a supplier or vendor to buy a specific product or products.
Not only do purchase orders help both you and your suppliers or vendors to keep accurate records for bookkeeping purposes, but it also serves several other purposes. For one, by using purchase orders, you can specify exactly what products or services you need from your suppliers and buy them when you need them.
From the vendor’s perspective, purchase orders allow them to ensure that they have the products in stock or can deliver the services before they commit to you.
There are generally five different types of purchase orders that you’ll use, depending on the circumstances:
- Standard purchase orders.
- Planned purchase orders.
- Blanket purchase orders.
- Contract purchase orders.
- Digital purchase orders.
While all these different types of purchase orders have the same purpose, they differ based on the information you’ll include in them. We'll now look at standard purchase orders in more detail.
What is a Standard Purchase Order?
Standard purchase orders are the most common and widely used type of purchase order by businesses. In fact, when most people think of the term purchase order, they're likely thinking of a standard purchase order.
Standard purchase orders are comprehensive and contain all the details of an order. This allows you to specify exactly the products or services you're buying, how much you're buying, when they should be delivered, and how you’ll pay for them. We’ll now deal with the information contained in the purchase order in more detail.
What Information is Included in a Standard Purchase Order?
Generally, a standard purchase order will contain the following information:
- Header. The header will typically contain your details, such as your business’s name and address. It will also contain the date of the order and the PO number.
- Vendor or supplier information. The purchase order will also contain the details of the supplier or vendor, including its name, address, and the details of the specific contact at the supplier.
- Shipping address. You’ll specify the address where you want the products to be delivered or services to be rendered.
- Order details. The standard purchase order also includes full details of the products or services required, including name, description, product code, quantity, price, and delivery date.
- Other details. You’ll also include other details like the terms and conditions of the sale, any applicable discounts, shipping costs, and the like.
When to Use a Standard Purchase Order?
You’ll typically use standard purchase orders for one-time or irregular purchases. For example, factory or workshop equipment is usually expensive and you don’t buy or replace it often. So, if you need to buy equipment and machines, you’ll typically use a standard purchase order.
Keep in mind, though, that standard purchase orders aren’t only used for expensive items. For instance, you might use a standard purchase order when you want to buy a relatively inexpensive coffee machine for your office.
The Process of Using a Standard Purchase Order
Now that we’ve seen what standard purchase orders are and when you’ll use them, let’s look at how you would use them in your procurement processes. Here, the process goes through several steps:
- The first step is when an employee prepares a purchase requisition for a specific product or service they need.
- Once the purchase requisition is approved, a purchase order will be prepared.
- When the purchase order has been prepared, it will be reviewed and it it’s in order, it will be approved.
- Once approved, the purchase order will be sent to the seller and if they can fulfill the order, they will approve it.
- After approval the seller will deliver the products or service on the date specified in the purchase order.
- After delivery, the seller will send an invoice in respect of the product or services delivered.
- If you approve the invoice, you’ll make payment to the seller.
To learn more about purchase orders and how ControlHub’s procurement software can help you make your procurement processes more efficient, visit our website for more details.