Purchase Order

Small business start up information

What is a Purchase Order?

A purchase order is a “written sales contract” between a buyer and seller detailing the exact merchandise or services to be rendered from a supplier. A purchase order will specify payment terms, delivery dates, item identification, quantities, shipping terms and all other obligations and conditions. Purchase orders are generally pre-printed numbered documents generated by the customer and used when the customer wishes to order stock.  Purchase orders are also referred to as “PO”.  For example when I receive a request for Show Mummy the Money from a bookstore, I insist the store provides a purchase order.  The purchase order allows me to track and reference the supply of the book.  The purchase order number, allows me to track the entire transaction from initial request, to invoice to payment received.  Finally the purchase order provides a written agreement between the bookstore and myself for the supply of the book.

When do I use a purchase order?

Purchase orders have two purposes in business.  You can use a purchase order-to-order stock for your business. Or you can insist your customers use their own purchase order to order your product or service.  If your business sells goods and services on 30-day trading terms, “credit sale”, you should insist your customers use a purchase order when transacting with your business. The purchase order provides official verification of the request for supply (an insurance policy), and may well be of legal benefit should the customer decide not to pay at a later date. Obviously for transactions where payment is made immediately upon the exchange of goods and services a purchase order is not necessary, the payment finalises the transaction.

What are the benefits of a purchase order?

For businesses insisting customers provide a purchase order:

  • They provide legal proof the customer has ordered the product or service from your business.
  • They provide an audit trail and can be helpful in tracking orders placed, and invoices issued.

For businesses using a purchase order to order stock:

  • A purchase order can state the conditions under which you will accept the supply of goods or services, should you receive the stock in an unsatisfactory condition, you will have a legal right to refuse the order, under the terms and conditions of your purchase order.
  • A purchase order can help your business operate more effectively.  The purchase order specifies the exact stock required, the quantity and a number of other important details about your order. By stipulating the details of your order you can eliminate any possibly mix-ups, and delays in receiving your order.
If you wish to use a purchase order to order your stock, please feel free to download our template and design your own purchase order. Please note only use a purchase order when purchasing stock, which you are not required to make immediate payment for. Please click here to download our template, purchase order.pdf.

Alternatively if you have decided to use an accounting software package to account for your business, check if the software is able to generate its own purchase orders.  Many accounting software packages are fully automated to handle more than just accounting.

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