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What Is a Purchase Order?
A purchase order (PO) is a document a buyer sends to a seller requesting particular products or services. The purchase order is a legally binding contract that indicates a buyer's intention to pay for the listed items at the specified price. This agreement protects the seller in the event of nonpayment. The seller can produce the purchase order as proof of the request and agreed-upon total.
If you're a buyer, you should request a purchase order confirmation for each order that you submit. This confirmation indicates that the seller has received and accepted the order. The purchase order confirmation gives the buyer protection if the seller fails to produce the items as ordered or charges a different sum than what's included on the PO.
What's Included on a Purchase Order?
A purchase order includes important details regarding the products or services that have been requested. At a minimum, a purchase order will include the following:
- Header with your company's name and address
- The date of the order
- A tracking number
- The seller's name and address
- Item type
- Product number, model number, or SKU
- Item quantity
- Item price
- Requested delivery date for the order
- Billing address
- Shipping address
- Subtotal including taxes, shipping costs, discounts, and other adjustments
- Payment terms (such as due upon delivery or within 30 days)
Your purchase order may also include other details as needed.
Types of Purchase Orders
To manage transactions, you might use one of the following four types of purchase orders, a key part of setting up your business .
- Standard Purchase Orders : These orders are the most common choice, specifying the basic information detailed above.
- Planned Purchase Orders : A planned purchase order places a request for items in advance. You may use an estimated quantity and range of delivery dates for a planned purchase order, exchanging more detailed information closer to the delivery date. If you purchase a large number of items routinely, planned purchase orders will help vendors plan accordingly so they can meet your needs.
- Blanket Purchase Order : A blanket purchase order indicates a commitment to buy a number of items up to a particular value. Buyers guarantee that they will spend a set amount with the seller.
- Contract Purchase Order : A contract purchase order details the terms of an upcoming PO before the purchase order itself is complete. A contract PO is usually used for large or expensive orders where the buyer and seller want more legal protection in the exchange.
Uses for a Purchase Order
Purchase orders do more than simply initiate a transaction. They provide valuable documentation for tracking and logging a transaction as well. You may refer to your purchase orders in the future for the following:
- Completing audits
- Preparing financial statements
- Tracking orders and avoiding duplicate orders
- Preparing budgets
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How to Submit a Purchase Order
To complete a purchase order successfully, follow the steps below.
- Identify what you want to buy . Determine which items you need to purchase from the seller and in what quantity. This determination is often done via a purchase requisition form which is completed by management and sent to the purchasing department.
- Determine when you need your products . Evaluate your business practices to determine exactly when you need your purchase order fulfilled.
- Draft a purchase order . Include a clear description of each item, the item's identification number where applicable, the quantity, and the price. For clarity, you should include both the price per item and the total price based upon the number of each item that you will buy. At the bottom of the purchase order, you will include a total for all the products on the PO.
- Submit the PO to the seller . Send your sales representative or other point of contact the completed purchase order with all the items you need as well as the date by which you need them.
- Wait for a confirmation of the purchase order . If you do not receive a confirmation, contact the company to inquire about the status of your submission.
- Await fulfillment and invoicing . You will receive an invoice from the seller detailing the total for your order and the timeline for payment. If you paid upfront, you should receive an invoice indicating no outstanding balance.
- Pay for the products . If you have an outstanding balance for your order, make sure to pay the invoice per the terms set forth by the seller to complete the fulfillment process for your purchase order.
Other Documents Related to Purchase Orders
The purchase order is only one in a series of documents exchanged as this type of business transaction is completed. Other important documents involved in the purchase include the following:
- Purchase Order Confirmation : The purchase order confirmation proves receipt of the purchase order by the seller. If a buyer doesn't receive a purchase order confirmation, the buyer should contact the seller to determine whether the purchase order was received or lost.
- Invoice : The invoice either requests or confirms payment for the order. An invoice includes much of the same information as the purchase order, with fewer details. If payment was not made with the initial purchase order, the invoice will specify when payment is due.
- Packing Slip : The packing slip is a document included with delivery of the order. The packing slip should match the item description and quantity as specified on the purchase order as well as the invoice.
Confirming the completion of a successful purchase requires all of the above documents. By using three-way matching with the purchase order, invoice, and packing slip, companies can ensure that every step was handled properly.
Limitations of Purchase Orders
Purchase orders are effective for purchases that have a predetermined price and quantity. You cannot use a purchase order for every expense within a business. Some items that you cannot track by using a purchase order include the following:
- Recurring bills : Your electricity, gas, water, or rent cannot be detailed on a purchase order. Rather than billing a vendor for these expenses, a supplier will bill you.
- Monthly subscriptions : Subscriptions may be billed monthly or annually, but they are not handled with a purchase order. A supplier will submit a bill to you on a regular basis.
- Services with Varying Costs : Financial, marketing, advertising, and legal services don't typically have a predetermined cost. You are billed for these services upon completion of the job and do not create a PO for them in advance.
- Internal Expenses : Internal purchases for which employees are reimbursed are handled with a reimbursement request. The employee does not submit a purchase order for expenses such as office supplies or business travel.
Best Practices for Purchase Orders
Make sure you're using purchase orders in the most efficient way with the following best practices:
- Clearly define who is responsible for handling purchase orders within the company. Do not allow employees to submit POs as needed, since this practice might result in duplicate orders.
- Include terms and conditions with your POs that specify how to handle the purchase order and define each party's responsibilities.
- Use an electronic system to manage purchase orders. This system eliminates unnecessary paperwork and allows you to more easily track your orders.
Purchase orders will help you handle essential transactions for your business as easily as possible by keeping them well-organized and easily referenced.
Meet some of our Purchase Order Lawyers
Terry Brennan is an experienced corporate, intellectual property and emerging company transactions attorney who has been a partner at two national Wall Street law firms and a trusted corporate counsel. He focuses on providing practical, cost-efficient and creative legal advice to entrepreneurs, established enterprises and investors for business, corporate finance, intellectual property and technology transactions. As a partner at prominent law firms, Terry's work centered around financing, mergers and acquisitions, joint ventures, securities transactions, outsourcing and structuring of business entities to protect, license, finance and commercialize technology, manufacturing, digital media, intellectual property, entertainment and financial assets. As the General Counsel of IBAX Healthcare Systems, Terry was responsible for all legal and related business matters including health information systems licensing agreements, merger and acquisitions, product development and regulatory issues, contract administration, and litigation. Terry is a graduate of the Georgetown University Law Center, where he was an Editor of the law review. He is active in a number of economic development, entrepreneurial accelerators, veterans and civic organizations in Florida and New York.
I'm a Washington-licensed lawyer specializing in trademark practice and with an extensive trademark education and academic background. I currently work with domestic and international businesses seeking trademark protection in the U.S. by conducting trademark searches, providing legal advice, submitting USPTO applications, and preparing responses to office actions. I'm passionate about trademark law and always looking forward to helping small and medium businesses promote their value by having a registered federal trademark. If you have questions or concerns about trademark/copyright/IP licensing and require legal advice, feel free to contact me so we can have a first chat.
Mr. Pomeranz serves as the principal of Pomeranz Law PLLC, a boutique law firm representing clients across myriad industries and verticals. Before founding the firm, Mr. Pomeranz served as Senior Vice President, Legal & Compliance and General Counsel of Mortgage Connect, LP in 2017. Mr. Pomeranz also served as Counsel, Transactions for Altisource Portfolio Solutions S.A. (NASDAQ: ASPS) beginning in 2013, and was based in the company’s C-Suite in Luxembourg City, Luxembourg. Mr. Pomeranz began his career with Mainline Information Systems, Inc. as an in-house attorney.
I have 10 years experience providing general counsel, in the form practical and timely legal advice, under strict deadlines to individuals and various business unit stakeholders, balancing commercial needs with legal concerns at large corporations and start-ups. I am skilled at reviewing, analyzing, drafting and negotiating commercial and government contracts globally for the procurement and sale of services and goods. I also help clients ensure compliance with regulations (including data privacy), laws and contractual obligations and protect, enforce and exploit intellectual property rights and support in the development of IP strategy. I am a Certified Information Privacy Professional/United States (CIPP/US) licensed by the IAPP - International Association of Privacy Professionals.
Over 15 year experience drafting, reviewing and negotiating contracts both as in-house counsel and in law firms, including my own law firm.
Rinky S. Parwani began her career practicing law in Beverly Hills, California handling high profile complex litigation and entertainment law matters. Later, her practice turned transactional to Lake Tahoe, California with a focus on business startups, trademarks, real estate resort development and government law. After leaving California, she also served as in-house counsel for a major lending corporation headquartered in Des Moines, Iowa as well as a Senior Vice President of Compliance for a fortune 500 mortgage operation in Dallas, Texas prior to opening Parwani Law, P.A. in Tampa, Florida. She has represented various sophisticated individual, government and corporate clients and counseled in a variety of litigation and corporate matters throughout her career. Ms. Parwani also has prior experience with state and federal consumer lending laws for unsecured credit cards, revolving credit, secured loans, retail credit, sales finance and mortgage loans. She also has served as a special magistrate and legal counsel for numerous Florida County Value Adjustment Boards. Her practice varies significantly from unique federal and state litigation cases to transactional matters. Born and raised in Des Moines, Iowa, Ms. Parwani worked in private accounting for several years prior to law school. Her background includes a Certified Public Accountant (CPA) certificate from Iowa (currently the license is inactive) and a Certified Management Accountant (CMA) designation (currently the designation is inactive). Ms. Parwani or the firm is currently a member of the following organizations: Hillsborough County Bar Association, American Bar Association, Tampa Bay Bankruptcy Bar Association, National Association of Consumer Bankruptcy Attorneys, and the American Immigration Lawyers Association. She is a Fellow of the American Bar Association. Ms. Parwani is a frequent volunteer for Fox Channel 13 Tampa Bay Ask-A-Lawyer. She has published an article entitled "Advising Your Client in Foreclosure" in the Stetson Law Review, Volume 41, No. 3, Spring 2012 Foreclosure Symposium Edition. She is a frequent continuing legal education speaker and has also taught bankruptcy seminars for the American Bar Association and Amstar Litigation. She was commissioned by the Governor of Kentucky as a Kentucky Colonel. In addition, she teaches Immigration Law, Bankruptcy Law and Legal Research and Writing as an adjunct faculty instructor at the Hillsborough Community College Ybor campus in the paralegal studies program.
Possesses extensive experience in the areas of civil and transactional law, as well as commercial litigation and have been in practice since 1998. I addition I have done numerous blue sky and SEC exempt stock sales, mergers, conversions from corporations to limited liability company, and asset purchases. I have worked in commercial litigation, corporate and transactional law, intellectual property and bankruptcy. In recent years I have expanded my practice to include family law, personal injury, medical malpractice, and wrongful death.