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For budgeting, expense monitoring, and supplier organization, it's essential for companies to utilize purchase orders as part of their financial documentation.
Having a well-crafted purchase order in place can help to ensure all transactions are handled properly and efficiently.
In this article, we will discuss what a typical purchase order looks like, why it’s important, how to fill one out, and give you access to a customizable template.
What Is a Purchase Order?
A purchase order (PO) is a document that a buyer sends to a seller to request goods or services. It includes all the essential details about the products and/or services being requested, such as a clear description of the product or service, quantity, price, delivery address, agreed-upon payment terms, and contact information.
It's a legally binding contract that obligates the seller to fulfill the purchase order according to its terms and conditions. A purchase order is an important step in the supply chain management process, as it identifies what goods or services are needed, when they will be delivered, and the total cost.
A purchase order is created by the buyer and sent to the seller to initiate the process. The seller then fulfills the purchase order and creates a packing slip or invoice to indicate that the buyer’s requirements have been fulfilled. This document is then returned to the buyer as proof of delivery and payment.
Uses of a Purchase Order
- Official transaction record — contains precise information such as product codes, descriptions, quantities, prices, shipping, and payment terms, thus minimizing any possible mistakes during procurement or production by the provider
- Legal document — a purchase order is legally binding, meaning that it creates contractual obligations for both the buyer and seller and can be used for legal protection
Benefits of Using Purchase Orders
- Increased accuracy — provides a single source of truth for both the buyer and seller, reducing errors in product specifications, pricing, and delivery date
- Inventory tracking — helps the buyer with inventory management and ensures that they never run out of stock
- Better budgeting — helps the buyer plan and manage their budget and cash flow more effectively
- Easier tracking — a purchase order serves as an audit trail that can be used to track purchases over time
Types of Purchase Orders
There are four different types of purchase orders, including:
#1 Standard Purchase Orders (PO)
A standard purchase order is the most common type of document used for procurement and shipping. They're incredibly detailed and should be utilized when businesses are confident about their purchase requirements. A standard purchase order should include all product details, terms, and conditions.
#2 Planned Purchase Orders (PPO)
A planned purchase order is used when a buyer and supplier have agreed to a long-term purchase agreement. This type of PO is often utilized when there is an expected need for certain goods or services on an ongoing basis, kind of like a monthly subscription. Dates and locations aren't typically included in planned purchase orders since the expectations span beyond a single shipment.
#3 Blanket Purchase Orders (BPO)
A blanket purchase order, also known as a standing order, is used when a buyer and seller agree on a set of goods and/or services, but the exact specifications are unknown. Unlike a PPO, a BPO does not contain delivery details, item quantity, or (potentially) price. However, it does include a list of the goods or services that'll be purchased.
#4 Contract Purchase Orders (CPO)
A contract purchase order typically serves as the basis for any future orders and, therefore, must include a detailed set of agreed-upon terms and conditions. However, it doesn't include any order details, quantities, or delivery dates. This type of purchase order is often used as a way to lock in long-term contracts between buyers and sellers.
How to Fill out a Purchase Order Form
A PO form typically includes the following fields:
- Buyer information — the shipper's name and address
- Seller information — the consignee's name and address
- Order date — the date when the PO was issued
- Purchase order (PO) number — the serial number of the PO
- Shipping method — can be either sea, air, truck, or rail
- Type of shipment — can be either Full Container Load (FCL), Less Than Container Load (LCL), Full Truck Load (FTL), Less Than a Truck Load (LTL), Air, or Break Bulk
- Country of origin — the country where the goods were manufactured
- Country of destination — the country where goods will be finally delivered
- Port of loading and port of discharge — seaport or airport in respective loading and discharge locations
- Departure date — the delivery date or handover
- Incoterms — specify which commercial term will be used
- Product details — product descriptions, SKU numbers, quantity, price
- Bank details — account information including account number and sort codes to the importer's bank account
- Additional charges and discounts — charges could include value-added services, freight, or discounts sellers are offering
- Name and signature of authorized signatories
Download a Purchase Order Template
Use our digital purchase order PDF, fill in your details once, and our software will automatically generate your purchase orders or any other shipping documents.
Stay on Top of Your Cash Flow
With Cargoflip, you can save time, reduce paperwork, and stay organized throughout the entire shipping process.
Creating a purchase order can be daunting, but it doesn't have to be. With Cargoflip's template and software solutions, you can easily create digital PO forms to help manage your shipments quickly and accurately.
This way, you'll stay on top of your cash flow without having to worry about manually filling out documents or any paperwork delays.
Purchase Order FAQ
What is a purchase order vs invoice?
A purchase order (PO) is a document issued by the buyer to the seller that details the exact products or services being purchased at an agreed-upon price. An invoice is a document sent by the seller to the buyer that includes all of the charges incurred from a purchase order, including any additional fees or taxes.
When are purchase orders used?
Purchase orders are used before goods and services are delivered. The document serves as a formal agreement between the buyer and the seller, outlining all the transaction details. It's typically used when purchasing large or expensive items, to ensure that the buyer and seller are both on the same page.
How is a PO number generated?
A PO number is generated by the buyer and assigned to the purchase order they've created. This number is used to track the order and make it easier to identify it in their records. The PO number is typically printed on the purchase order before it's sent to the seller.
Is a purchase order a legally binding contract?
Yes, a purchase order is a legally binding contract. Once the buyer and seller have both signed the document, it becomes enforceable under the law.
What is a purchase order process?
A purchase order process is part of a comprehensive procurement process that confirms and properly specifies the need for goods or services. The PO process starts when a buyer sends out an order document to the seller and ends when the goods or services are delivered and payment is made.