Purchase order

Purchase order

A purchase order (PO) is a commercial document issued by a buyer to a seller, indicating the type, quantities and agreed prices for products or services the seller will provide to the buyer. Sending a PO to a supplier constitutes a legal offer to buy products or services. Acceptance of a PO by a seller usually forms a once-off contract between the buyer and seller so no contract exists until the PO is accepted. [cite book
last = Dobler
first = Donald W
coauthors = Burt, David N
title = Purchasing and Supply Management, Text and Cases
edition = Sixth Edition
year = 1996
publisher = McGraw-Hill
location = Singapore
pages = p70
] POs usually specify terms of payment, incoterms for liability and freight responsibility, and required delivery date.

tructure

A purchase order usually contains: PO number, shipping date, billing address, shipping address, terms of payment (usually in the form of Net 30, Net 45 and Net 60 depending on requirements set by the seller), and a list of services/products, often including specifications and reference or part numbers of the items to be purchased, with quantities and prices. When accepted by the seller, it forms an agreement between the buyer and seller.

Rationale

There are several reasons why companies use POs. They allow buyers to clearly and explicitly communicate their intentions to sellers, and to protect the seller in the event of a buyer's refusal to pay for goods or services. For example, say Alice works for Company A and orders some parts from Company B. There could be a problem if Alice wasn't actually authorized to issue this purchase order - perhaps due to a miscommunication, she mistakenly thought that she had the boss's permission to place the order. Once this error is discovered the order is canceled. Depending on the type of product being ordered, and at what stage the PO was canceled, Company B may incur manufacturing costs (labor, raw material, etc.) as well as shipping and packing costs. They might also lose the product entirely (for example, if it is perishable).

In order to prevent such problems, sellers often request purchase orders from buyers. This document represents the buyer’s intent to purchase specific quantities of product at specified prices. In the event of non-payment, the seller can use the PO as a legal document in a court of law to demonstrate the buyer’s intent and to facilitate collection efforts. Companies usually request POs when doing business with other companies for orders of significant size, as the PO reduces the risks involved.

In the course of the accounts payable process, purchase orders are matched with invoices and packing slips before the invoices are paid. The purchase order is a contract between the seller and buyer that details pricing, delivery and the products or merchandise. It is used for internal control in business so that costs are identified prior to the receipt of the invoice. It is also the basis to contest an invoice should the purchase order and invoice not be in agreement.

ee also

* Sales order
* Purchase Requisition

References


Wikimedia Foundation. 2010.

Игры ⚽ Нужно сделать НИР?

Look at other dictionaries:

  • purchase order — A document authorizing a seller to deliver goods, with payment to be made at a later date. Dictionary from West s Encyclopedia of American Law. 2005. purchase order A document authorizing a seller to de …   Law dictionary

  • purchase order — A written order to buy specified goods at a stipulated price. Bloomberg Financial Dictionary * * * purchase order purchase order ➔ order1 * * * purchase order UK US noun [C] ACCOUNTING ► a document that asks a company to supply goods or services …   Financial and business terms

  • purchase order — noun a commercial document used to request someone to supply something in return for payment and providing specifications and quantities IBM received an order for a hundred computers • Syn: ↑order • Derivationally related forms: ↑order (for:… …   Useful english dictionary

  • purchase order — / pɜ:tʃɪs ˌɔ:də/ noun an official order made out by a purchasing department for goods which a company wants to buy ● We cannot supply you without a purchase order number …   Marketing dictionary in english

  • purchase order — / pɜ:tʃɪs ˌɔ:də/ noun an official order made out by a purchasing department for goods which a company wants to buy ● We cannot supply you without a purchase order number …   Dictionary of banking and finance

  • Purchase order request — A Purchase Order Request is a request sent by a company to obtain more stock.The request is a note which tells the purchasing department exactly what stock to order and how much. It is usually used in smaller business who do not have a computer… …   Wikipedia

  • Purchase Order Lead Time — The number of days from when a company buys the production inputs it needs to when those items arrive at the manufacturing plant. Purchase order lead time can have a significant impact on a company s bottom line. It is a key component of delivery …   Investment dictionary

  • purchase order — noun A commercial document issued by a buyer to a seller, indicating the type, quantities and agreed prices for products or services the seller will provide to the buyer …   Wiktionary

  • Purchase order — Заказ на поставку; Заказ …   Краткий толковый словарь по полиграфии

  • compulsory purchase order — ➔ order1 * * * compulsory purchase order UK US noun [C] UK (US eminent domain order) ► LAW, PROPERTY a decision made in a court of law giving a government organization, etc. the right to buy private property if it needs the land to build… …   Financial and business terms

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”