As the name suggests a purchase order is an official written order, it is used in business to business transactions. It is a document sent by a buyer to a seller confirming & authorizing a particular purchase. Once a PO is accepted by a seller it forms a contract between both the parties. It is then a legally binding document which cannot be altered without the consent of both the parties. At times it is kept open for a pre-decided period in which the vendor supplies required products at a fixed rate. Now a days the entire procurement process is handled end to end with the help of specialized ERP packages.
It contains the following:
- Date of order
- Purchase order number
- Name and address of purchaser
- Name and address of supplier
- Mode of transport
- Details of purchase
- Shipping terms
- Payment terms
- Shipping date
- Quantity ordered
- Details of tax (if any)
- Signature of the authorized personnel from Seller’s side
Sample Format of a Purchase Order
Types of Purchase Orders
There are mainly 4 different types:
- Standard PO
- Contract PO
- Blanket PO
- Planned PO
Standard Purchase Order – is the most basic and widely used type of PO, it is created when you are sure about the item, price, delivery schedule and payment terms.
Contract Purchase Order – is created for a set period of time & the item to be purchased is unknown. In this case both the buyer and supplier get into a contract without agreeing upon particular goods to be bought.
Blanket Purchase Order – is used in cases where quantity, price and required delivery schedules are unknown. There can be numerous delivery dates over time. It is often used in case of large quantities with exceptional discounts.
Planned Purchase Order – is planned for long-term however exact delivery timetable is not known in advance. The dates of delivery can only be anticipated and hence only tentative dates are provided to the supplier.