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What is Purchase Order?

A purchase order (PO) is the official offer documenting the exact requirement of the buyer in terms of quality, quantity, performance, pricing and payment terms for the products or services. It is issued by buyers to their suppliers.

A purchase order is the first official document created by the purchasing department to procure products. It is made after the purchase requisition is approved by the procurement department. 

Each purchase order is given a unique number by the buyer. It includes details such as order date, shipping information, discount conditions, names of suppliers, description of goods, price per unit, and total quantity of items required.

The purchase order is not a contract until the supplier signs it. When the supplier receives a purchase order, they can accept or reject it. Once signed, the purchase order becomes an official contract which is legally binding for both parties. The supplier agrees to supply the items detailed in the purchase order, and the buyer agrees to pay the specified amount. 

Benefits of Purchase Order 

  • Buyers can keep track of goods ordered. 
  • Buyers can avoid duplicate orders and save procurement costs. 
  • They can quickly pay for procurement by matching invoices with POs.
  • Signed purchase orders become legally binding contracts.
  • Suppliers can manage their inventory better with purchase orders. 

Electronic purchase orders expedite the procurement process, saving time for creating and sending purchase orders. E-procurement allows easier buying and selling of services. It can integrate with ERP solutions implemented by both buyers and sellers.

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